Author: Nicolas Nel
The mortgage bond market in South Africa is very well developed. Foreigners, however, face more obstacles than South African citizens when applying for a mortgage bond. Along with the requirements set out by the South African Reserve Bank (SARB), banks sometimes prescribe their own requirements to qualify for a mortgage bond.
Foreigners who have permanent residence status and are domiciled in South Africa are assessed in the same manner as South African citizens and their mortgage bond process is not discussed here.
The SARB considers all persons without a domicile in South Africa as non-residents. However, foreigners who have documentation to live and work in South Africa are considered South African residents for the duration of the validity of these permits.
The SARB prescribes different requirements for bond applications by foreigners according to these categories;
- Foreign buyers. These are foreigners not currently residing in South Africa and that do not have temporary residency status;
- Foreigners with valid South African documentation, such as a temporary residence permit, i.e., a work visa;
- South African residents working abroad.
With regards to foreign buyers, the SARB prescribes that the individual in question may only borrow up to a maximum of 100% of his/her borrowing base. The borrowing base is equal to the sum introduced into South Africa. For example, a foreign buyer who wishes to purchase a property in South Africa for R1 000 000.00 needs to introduce R500 000.00 in cash through the SARB and will then be able to apply for a bond of the remaining amount of the purchase price. Theoretically, if a foreign buyer has consistently brought funds into South Africa over a number of years, he/she may borrow up to a maximum of 100% of the total funds invested in South Africa. This amount could well be more than 50% of the purchase price of the property.
Temporary residents may apply for local financial assistance, including a mortgage bond for the purchase of residential property. Such a mortgage bond is not restricted. It is, however, important to note when the temporary resident departs South Africa, the abovementioned restrictions imposed on foreign buyers will apply and the bond may have to be reduced to be in line with the SARB’s requirements.
For South Africans working abroad, most banks will not usually grant a 100% bond. However, if the South African working abroad can prove that they are living abroad temporarily and have plans to return to South Africa, banks may consider granting more favourable loans.
Along with these mentioned restrictions, banks tend to set their own conditions for non-resident mortgage bond applications. For example, certain banks only grant loans to non-residents for the purchase of new property and/or for a maximum of one property per individual. Certain banks also require non-residents to open a local transactional account from which the debit order can be loaded. Exchange control approval needs to be obtained before the mortgage bond will be registered. It is thus possible for foreigners to be granted mortgage bonds in South Africa. The main restrictions faced are the SARBs requirements in terms of the maximum amount of the loan granted, and the banks conditions for the approval of such loan.