The truth is that, despite reported high approval rates, many consumers are struggling to obtain a home loan. The property industry has become expert at overlooking applicants who will not qualify with the banks, and the high reported approval rates simply ignore the fact that many never even reach the application stage.

The home finance industry is peculiar in another way. Is there any other market where a very large demand for a particular solution is serviced with only one type of financial product? Cars, for instance, can be financed with a hire-purchase transaction, a finance lease, operating lease, rent to buy, and several other models. But for home finance there is only the mortgage bond.

Sentinel Homes is a new home finance business that offers home finance using an old structure – the instalment sale. This addresses the issue of orphan categories of home finance applicants, such as the self-employed, commission earners, freelancers and foreign nationals, while at the same time being the only alternative to the mortgage bond for home finance. The business has been operating since May 2018 and is a unique presence in the home finance market.

The consumer buys a house like he normally would: by finding one he will be able to afford and signing an offer to purchase (OTP). If the offer is accepted and the application falls inside our target market, then application is made to Sentinel Homes at the same time as application is made to the banks.

The application is sent to our applications office for consideration. If approved, the process continues to the point where the client moves into his new house and the transfer is registered in the deeds office. Practically, there will be little difference from buying a house with bond finance. The client will live in his home while making monthly finance payments.

Any creditworthy consumer who can afford a home loan but is struggling with the mortgage loan approval process. This includes applicants who are declined by the banks and also some of the applicants who receive lower offers than requested.

Anecdotally, we know that we have a bigger appetite for self-employed applicants, freelancers, commission earners (such as estate agents and other salespeople), contract workers, persons earning foreign income or periodically working abroad, landlords, and other categories of applicant. We also take future rental income into account.

Our offering is not a debt rescue service and is not aimed at consumers who are not creditworthy. In fact, the average credit score of our clients is generally higher than the cohort of consumers who are granted bonds.

The difference is a legal one only and relates to the process followed on default. There is little practical difference as long as instalments are paid and the loan agreement complied with.

When a house is financed with a bond the house is registered in the borrower’s name but the bank holds power over it through a legal instrument called a mortgage bond. The consumer cannot sell the house without paying the bank from the proceeds of the sale. The bank can insist that the house be insured, can repossess the house if the instalment is not paid, and has some other minor rights as well. Legally speaking, the consumer’s name is on the title deed, together with the bank’s name, as holders of rights over the property.

In the case of an instalment sale, the consumer’s name will also appear on the title deed as a holder of rights over the property. The difference is that Sentinel Homes is legally the registered owner of the property until the final instalment has been paid.

As long as the instalments are paid in good time and the client continues to comply with his other obligations in terms of the loan agreement, there will be virtually no practical difference from bond finance. The client will make monthly payments and live in his home.

Housing finance in South Africa is regulated. In the case of an instalment sale additional legislation, the Alienation of Land Act, applies. The Act does not apply to bond finance and provides additional safeguards for people who use instalment finance for their house. Even in the unlikely event of Sentinel Homes being declared bankrupt, which is the most extreme possible outcome, the law provides that the client will be safe in his home as long as he continues to abide by the terms of the loan agreement and pays the monthly instalment.

Sentinel Homes is financed by the large South African financial institutions, which perform stringent financial checks before providing that finance. The chance of something happening to Sentinel Homes is therefore remote. But even if something unexpected or unforeseen does happen, our clients are not at a disadvantage.

The costs involved are typically the same as when buying a property with bond finance. These costs include, but are not limited to, a deposit, transfer costs, transfer duty and insurance.

When financing a house by means of an instalment sale, there is an additional transfer. The first transfer is from the existing owner to Sentinel Homes, and the second is from Sentinel Homes to the borrower once the final instalment has been paid. The first transfer is paid for by the client, as would have been the case with bond finance, and the second transfer is paid for by Sentinel Homes. This means there is no duplication of costs.

Finance is provided at competitive interest rates. A detailed quotation will be provided if your application is successful. Generally, we quote interest rates in the band between prime and prime plus 2%. A monthly service charge is also levied, which currently is the prescribed amount of R69, including VAT, per month.

The only certain thing in life is that unexpected things will happen. That is why we encourage all our clients to take out comprehensive insurance. This is intended to ensure the home finance is paid in the case of an unexpected life event. We offer quotations from external service providers for some of these insurance products for the sake of convenience, though consumers are free to take out the insurance elsewhere. In instances where the insurance cover does not apply or is insufficient, an arrangement will have to be made with Sentinel Homes, which may include selling the home, settling the finance and paying the remainder over to the client. This would also have been the case with bond finance.

If some unexpected event causes non-payment, we encourage clients to contact us and make suitable arrangements.

If no suitable arrangements are possible, the house could be sold in the open market and Sentinel Homes be repaid from the proceeds. There is also a contractual mechanism where we can do this on the client’s behalf, which is similar to Section 127 of the National Credit Act (surrender of goods).

If all of these mechanisms fail, the instalment sale contract allows us to offer the house for sale in the open market and sell it. Sentinel Homes then recovers what is due to it from the sale proceeds, and the balance is for the borrower’s benefit and account. Therefore, Sentinel Homes does not benefit from the sale of the property and has no economic interest in the accrual of value of the property over time. We earn our money from interest and finance charges, and do not benefit from foreclosures. Our incentives are therefore aligned with those of the client, and compel us to ensure our clients remain instalment payers rather than become foreclosure victims.

Sentinel Homes is a registered credit provider (NCRCP8067).

As a registered credit provider Sentinel Homes complies with the National Credit Act and its regulations, and is committed to combat over-indebtedness and reckless lending. We use the same statutory requirements when it comes to financial means testing and affordability assessment, but stop short of the quirks and absurdities built into mortgage lenders’ scoring systems.

Almost anyone qualifies for our standard offering, which is home finance up to 95% loan to value. However, the following are not permitted applicants:

i. Applicants who are older than 60 years at the time of the application

ii. Foreigners, unless they a) hold a permanent residency permit or other visa entitling work and b) are domiciled in South Africa

iii. Unrehabilitated insolvents

iv. Persons under debt review or administration

v. Persons under curatorship

vi. Persons who are legally unfit to manage their own financial affairs

vii. Minors

viii. Persons against whom insolvency proceedings have been instituted or are pending

ix. Companies to be formed or other inchoate juristic entities

x. Any associations of persons devoid of legal personality and the resultant capacity to own property and enter into contracts

xi. Trusts that do not have the power to own property

xii. Any trust that has a determined date of dissolution or vesting less than 20 (twenty) years from the date of application

xiii. Persons who are married in community of property, unless joined by their spouse as co-applicant

xiv. Unincorporated “firms” or partnerships, unless the partners are applying jointly in their own names

xv. Foreign companies, foreign trusts or any other foreign juristic persons.

We finance most kinds of properties, but are limited in some respects for now. Due to mandate restrictions we cannot consider properties under the following conditions:

i. Property situated outside the Western Cape, Gauteng, eThekwini (Durban metropolitan area),  Nelson Mandela Bay (Gqeberha and Kariega metropolitan area), Mangaung (Bloemfontein metropolitan area) and Buffalo City (East London metropolitan area).

ii. Property of which the purchase price or market value is less than R400 000

iii. The total finance granted must not exceed R3 million, unless:

a) The property is in the Western Cape and there is at least a 20% deposit, in which case we can fund up to R5 million; or

b) For all other areas, there is at least a 15% deposit, in which case we can fund up to R3.3 million.

iv. Properties that are not primarily used for residential purposes

v. Where the finance applicant intends a use that is not residential

vi. Where any person holds a usufruct, servitude of use, or servitude of habitatio, or life right. Sentinel Homes does not finance the acquisition of bare dominium.

vii. Vacant land is not financed, and building loans are not considered.

We generally do not finance properties that are not the applicants’ primary residence. We are willing to consider one investment property exposure per client in selected circumstances, where the clients are professional landlords with an established track record and the tenancies are professionally managed by a third party.

The answer is not “no”! There are escalation procedures inside your organisation to permit submission of applications that do not precisely meet the qualifying criteria. For instance, let’s assume your client requires finance outside the target loan value band by R50 000. Will Sentinel Homes consider it? Yes, it is very likely. Please escalate for submission to us.

We can finance foreigners who are “residents” for exchange control purposes, which would require that they hold a valid visa for living and/or working in South Africa and additionally that they are domiciled here. Domicile is a legal requirement that signifies a person’s place of return or their home for legal purposes, and is determined according to the applicant’s subjective intention.

We have successfully financed homes for permanent residency permit holders, but also for spousal visa holders, work visa holders, refugees, asylum grantees and holders of ZEP permits.

Foreigners who hold a permanent residency permit qualify for 95% loan to value. All other foreigners who pass the visa plus domicile test qualify for a maximum of 90%.

Finance loan to value is always calculated using the lower of the purchase price or open market value. Trusts, companies and juristic entities qualify for LTVs of up to 90%, as do foreigners who do not hold a permanent residency permit. Foreigners who do hold a permanent residency permit qualify for maximum of 100% LTV.

All other permitted applicants can obtain finance up to 100%.

If the requested loan amount is above R3 million, special rules apply. For the main centres of the Western Cape, we can go up to loan amounts of R5 million, provided the LTV does not exceed 80%. In all other permitted areas, the maximum loan amount we can motivate, based on low LTV, is R3.3 million.

Sentinel Homes has origination agreements in place with the large bond originators. Your bond originator of choice is therefore in a position to send us applications and should earn commission that is equal to the commission earned on bank deals.

We prefer having bond originators involved in applications in order to improve efficiency, which is to your, our, and the client’s advantage.

We will get back to your bond originator within two days of receipt of an application. This will be either a decline, a request for further information or documents, or a quotation for consideration by the client. If we request further information, we will get back to the originator within two days of receiving the information or documents requested. This two-day turnaround time applies in all instances.

Sentinel Homes will contact the estate agent to confirm that the finance has been granted and to arrange for signature of a new OTP (between the seller and Sentinel Homes). This is required by the Deeds Office because Sentinel Homes will be taking transfer of the property (otherwise it cannot be an instalment sale). We handle this process with the estate agents often and have had no problems with substitute OTPs.

Once the seller has signed the substitute OTP, we request a valuation from our appointed valuer. The replacement OTP has a valuation condition. Once the valuation condition is fulfilled, we issue instructions to the attorneys for the registration of the transfer (Seller to Sentinel Homes) and the other conveyancing work. The normal conveyancing process will follow, but will include signature of all documents by your finance client.

Once the transfer from the seller to Sentinel Homes has been registered, the conveyancers wait for the deeds to come from the Deeds Office. As soon as the deeds have been received, the Section 20 endorsement is submitted for registration. This endorsement, which records the instalment sale against the property title, is usually registered in about 1-2 months from the point of transfer.

Your commission is paid once the transfer from the Seller to Sentinel Homes has been registered, and will not be delayed by the Section 20 endorsement process. The timing of payment of your commission is therefore identical to bond finance.

Due to the technical and out of the ordinary conveyancing work involved, we currently prefer to work exclusively with Miltons Matsemela Inc and STBB. We unfortunately cannot commit time to training more firms, but our panel will expand in future.