Beware bond cancellation clause, warns Rawson

News > news - 24 Oct 2008
Buyers and sellers of South African residential property should take note that certain local banks are imposing large penalties on mortgage bond holders who fail to give a full three months’ notice of their intention to terminate a bond warns Bill Rawson, Chairman of the Rawson Property Group.

The penalty, adds Rawson, is very often three months bond payments, a large sum by any standards. The argument put forward by the banks to justify this apparently draconian ruling, says Rawson, is that they require time to process the documentation and to reinvest the money optimally.

“I find this difficult to accept,” says Rawson, “because presumably in the interim they can put the cash into the money market and earn a high rate of interest there. The suspicion, therefore, is that they see this is a means of generating extra revenue, even though they have repeatedly urged bond holders if possible to speed up bond repayments by repaying at faster than the stipulated rate.”

Rawson said that his group is emailing all its branches advising them to look out for the three months notice clause in bond agreements. If necessary, he says, it may even be wise to delay transfers until the three-month period has expired. Alternatively, agents may be able, on the client’s behalf, to negotiate with the bank to modify this clause.

“The plain truth,” says Rawson, “is that virtually the whole industry regards it as unfair, particularly when it is applied to those who were unaware that this clause exists.”
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