Buying a property by instalment sale, whereby ownership fully transfers to you only once the final payment has been made, is not new – property developers are known to sell homes this way. However, a company in the Western Cape, Sentinel Homes, is extending this form of sale to people buying any property on the market.
Renier Kriek, chief executive of Sentinel Homes, says the aim is to open up home ownership to people who for some reason other than creditworthiness, cannot obtain a bond or a big enough bond through a bank.
Because the bank approval process is something of a “blunt instrument”, Kriek says, many people applying for bonds – and he can cite a number of anecdotal examples – fall through the cracks. These include the self-employed, freelancers, those who do regular contract work offshore and people with no established credit record.
The process is much like obtaining a bond from a bank, although the approval process is more attuned to your unique circumstances. If approved, Sentinel buys the property and you pay it off by instalment.
The instalments are amortised over 20 years, but the finance term is 10 years. If, after that term, you have not sold your property and moved on, you will have to settle the balance with a balloon payment to Sentinel Homes. You can do this either with your own capital or a bank loan, or you can sell your home. It may also be possible to extend the loan from Sentinel.
“Trends show that mortgages are settled from home sales on average every eight years, so this arrangement would suit the average homeowner,” says Kriek.
The costs involved are typically the same as when buying a property with bond finance. These include, but are not limited to, a deposit (of not less than 5%), transfer costs, transfer duty and insurance. Finance is provided at competitive interest rates.
You are free to sell your house at any time before the finance is repaid, as long as your selling price is large enough to cover your outstanding debt with Sentinel Homes.
If you default on the repayments, Kriek says, unlike the banks, which are quick to force through a sale on auction of a distressed property, Sentinel will sell the property on the open market via an estate agent, resulting in what is likely to be a far more favourable outcome for you.
One condition of such a sale is that you use the property as your primary residence and that you get approval from Sentinel Homes before deciding to let it out.