One of the common experiences estate agents have with banks these days is the granting of lesser bonds to buyers than those required in terms of the original offer to purchase. The latter may provide that the sale is subject to a 90% loan being granted, only for the bank to give a 75% loan, leaving the suspension condition unfulfilled. Legal expert John Gilchrist explains how agents should handle this situation, especially when the buyer is willing to make up the balance in cash.
The legal position until recently
Case law on this has always held that the buyer must effectively waive the suspension condition in writing before the time allowed in the contract for fulfilment of the condition expires. The attitude of our courts has always been that a suspensive condition making a sale subject to a mortgage loan being granted has always been for the benefit of the buyer, thereby allowing him the right to waive the condition and declare the sale unconditional. No provision was ever made, however, as to how the purchase price should then be paid or the period within which this must be done. The simple result was that the sale became binding on the parties on the assumption that the buyer would make up the balance of the purchase price in cash but without any determination of the date by which payment should be made.
In recent court decisions, however, there have been cases where the courts have begun to interpret this provision differently. Finality seems to have been reached in a very recent decision where the contract had provided for a 100% loan to be granted to the buyer, only for her bank to award a 90% loan instead. Previously our courts have traditionally enforced the provision that a written waiver must be signed by the buyer, but the recent case referred to has varied that and has re-interpreted the conditions for fulfilment of a suspensive condition determining the manner of payment of the purchase price.
Payment must be made timeously
In the matter at hand the buyer did not sign a waiver of the suspensive condition but paid the balance of the purchase price to the conveyancers handling the transfer within the 21-day period provided for the granting of the loan. The sellers objected to this on the grounds that the sale contract had a clause (common to virtually all property sale contracts) providing that no amendment of the terms of the sale would be valid unless they were done in writing and signed by both parties.
The court, however, held that the buyer had discharged her obligation to secure the full purchase price within the 21-day period allowed to her by paying a 10% deposit and obtaining a loan for the balance of the purchase price timeously. This resolved the question of the time period within which the purchase price must be secured and the question of whether the buyer must waive the suspensive condition and declare the sale unconditional.
The decision does not appear to have overruled the option of signing a waiver but it has determined how fulfilment of the suspensive condition may be achieved and the time period within which payment of any portion of the purchase price not covered by a loan must be made. In any case where a buyer can obtain a percentage loan, even where the contract stipulates that it must be a higher percentage, the buyer can circumvent this simply by paying the balance of the purchase price in cash before the time period allowed for the suspensive condition to be fulfilled expires.
(Here ends the article by Gilchrist. Below follows an extraction from a recent statement by originators Betterbond on current trends observed by banks granting home loans. Ed.)
Recent trends with home loans
According to a recent press statement from Betterbond repeat home buyers are currently the mainstay of the residential property market, accounting for 55% of new bond applications and 66% of formally granted home loans.
“This is a positive indicator for the market,” says CEO Rudi Botha, “because it shows that despite the current political and economic uncertainties, most existing home owners are not selling up and extracting all their proceeds, but re-investing these into their next homes in SA.
“Indeed, even though consumers have been under tremendous financial pressure over the past 12 months, the average deposit paid by buyers in this sector has only declined from R223 000 to R220 000. And this has done much to sustain home price growth, which showed a year-on-year rate of 5,2% at end-August.”
Botha also says their statistics indicate a rise in the percentage of home loans granted for amounts greater than R1m (41% in the past 12 months up from 39% in the previous year and 38% two years ago).
“By contrast, though, there have been significant declines in the percentages of bonds being granted for less than R250 000 and for between R250 000 and R500 000 – the home price categories which have traditionally been most favoured by lower-income first-time buyers with a housing grant or only a small deposit,” he says.
And this is not such a positive sign for the future of the market, says Botha, as it suggests that many entry-level buyers are being squeezed out of the market – perhaps permanently – because they simply cannot afford the monthly bond payment, even though the banks are now often prepared to grant 100% loans to lower-income buyers with good credit repayment histories.
“Our stats show that the average home price in the first-time buyer sector has risen by almost 10% in the past 12 months to R842 000, and that there has simultaneously been good growth in the percentage of bonds granted in the R500 000 to R1m category.
“But that suggests that the income required just to enter the market has shifted substantially higher than the majority of SA households earn, that the ‘nursery’ of the market is shrinking and that the total number of market participants available to become repeat buyers will accordingly be constrained for some years ahead.”
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