ABSA'S new future rental income assessments on residential property will boost buy-to-let investment

ABSA'S new future rental income assessments on residential property will boost buy-to-let investment.

One of the serious barriers to buy-to-let property investing has been overcome by ABSA's recent decision to introduce a new Future Income Assessment  arrangement when considering the viability of buy-to-let loan applications - and ABSA's lead here, says Rowan Alexander, Director of Alexander Swart Property, is likely to be followed by all major South African banks.

Quoting ABSA's press release on this subject, Alexander said that ABSA's Future Rental Income Solutions (FRIS) are designed specifically for residential property investors who already own two or more properties (either bonded or unbonded with ABSA or another bank) and who want to continue to earn rental income by investing further in this field.

Potential rental incomes - and rental rises - have, said Alexander, until now not been taken into account in assessing the bond loan applicant's credit worthiness, the former practice being to take into account only the applicant's current income. Under the new arrangement, future rentals WILL be included and the banks experienced teams will help assess what these will be, a win-win situation for all involved.

"It could be said that the banks are now taking on extra risk but the simple truth is that  in the Western Cape - but also elsewhere - buy-to-let continues to be a sound investment, especially in the sub-R1,6 million price bracket where properties very seldom remain unlet for long periods and good tenant selection can minimise the risk of being landed with an unreliable tenant.

"If one takes the new Fountain Views development in Brackenfell as a typical 'affordable' buy-to-let opportunity, it is possible here to buy a two bedroom apartment for R1,145,000 and on this to secure an income of R9,000 per month.  It makes absolutely no sense to disallow this 'future income' in assessing the loan applicant's decision."

Alexander said that he welcomed ABSA's recognition that the majority of residential properties can still be seen as a good investment option for buy-to-let purchasers.  Investors, he said, are now more cash strapped than formerly, but under the new arrangement  are likely to look on buy-to-let for more favourably.

Alexander pointed out that the current arrangement can cover existing and new residential dwellings, but does not cover smallholdings, vacant land or building loans.  Also excluded are first time home buyers and commercial home loans.  ABSA, he added, have developed back-up property and tenant management services to assist buy-to-let investor but many investors will opt to continue to use estate agents who have proved themselves to be good tenant managers.