Home loans with a twist

here are a large number of otherwise creditworthy people who do not qualify for home loans. They could be selfemployed, freelancers or simply foreigners without local IDS.

Most frustrating of all is people who do not have credit records because they have never taken out debt.

This is the target market of the new Sentinel Homes.

It employs the instalment sales finance method — used for cars, yachts and other moveable properties.

Loans of up to 95% of the purchase price are granted.

It has been possible to get instalment finance on homes before, but mainly from developers for specific properties only.

But CEO Renier Kriek advises those people who can get conventional bank finance to go that route. Sentinel will typically charge 1.5% to 3% above prime — it does not have access to the bank’s cheap finance. And in line with other forms of instalment finance Sentinel remains the registered owner — like that old bumper sticker, “My car belongs to Wesbank.”

It gives Sentinel more power to turf out defaulters. It still has to comply with the National Credit Act, giving some protection to clients. But watch out as Kriek’s partner, Mathys Briers-louw, is an attorney who specialised in litigation and risk management.

One problem I have with this new offering is that it is priced for 20 years, but has a 10-year deadline, after which clients have to pay off the rest in a balloon payment.

Only in exceptional circumstances will Sentinel extend the loan.

Kriek says the average homeowner turns over a house every eight years, so most people will sell within the 10year deadline.

Sentinel is starting off in the Western

TCape and is looking at properties in the R500,000 to R2.5m range.

This will exclude the vast majority of houses, and even apartments in the City Bowl, southern suburbs and Atlantic seaboard — but it could play a role in the fast-developing areas further out.

Is it suitable?

Sentinel is coming into the market at a time when some banks show little interest in home loans, which requires significant capital but has low margins.

Standard Bank has maintained its share at about 30% and is the most aggressive player, but at Absa, the historic leader (the old United and

Allied building societies were at its core), the market share has fallen from 26% to 20%.

FNB, which is so keen on gaining market share elsewhere is bumbling along with a 16% share. Maybe Wesbank will start offering instalment finance mortgages to step in where the rather sleepy FNB Home Loans division isn’t very active. Nedbank, meanwhile, has overtaken Absa to take second place behind Standard Bank.

I wonder whether the whole concept of home ownership is suitable for the far less settled world of the millennials. Changing homes every eight years looks like flipping to me, but to many people under 35 it might look like living in the slow lane.

However, buying and selling properties too often is expensive when you consider just the transfer duty and estate agent’s commission.

Sentinel hopes to bring more renters into home ownership, and buying a house is a useful way of building up an asset which will be an inflation hedge. But it requires both patience and certainty around income.

And there are studies to show that if you rent for a little less instead of buying, and put the difference into an equity unit trust, you will end up with a larger pool of assets.

For those who see home ownership as a must-have there are also unconventional ways to get home loans. Capitec does not officially offer them, but many of its personal loans are for property finance. No doubt this would be more expensive than either conventional home loans or Sentinel’s version.

But for an entrepreneur planning to pay the loan quickly, Capitec’s loans could make sense.

Buying and selling properties too often is expensive when you consider just the transfer duty and commission