There’s an emerging trend in home financing for irregular earners

It’s not easy to get a mortgage on your dream home if you’re not employed full time and earning a fixed salary. Freelancers, those working on commission or sourcing their income from gigs, and many other independent earners, often find themselves facing a brick wall when applying for a home loan from banks.
 
However, more people than ever are becoming self-employed in these fields and are seeking easier alternatives to a traditional mortgage bond. This is according to Renier Kriek, Managing Director at Sentinel Homes, which specialises in financing home ownership through instalment sale agreements.
 
How does it work?

“Instalment sale agreements are steadily becoming popular not just among those that do not qualify for a bond but also many who do not fit the salaried mould for which the mortgage model was specifically developed,” says Kriek.
 
An instalment sale makes acquiring a home similar to buying a vehicle on hire purchase. In Sentinel’s case, the company finances the purchase and the buyer repays the value of the property in monthly instalments.
 
Although the company holds the title deed, the buyer enjoys all the rights and responsibilities of ownership during the period of the contract. Once the purchase price is repaid in full, total ownership is transferred to the buyer.
 
“On the surface, there is little difference between buying with a bond or via an instalment sale,” says Kriek. “The only practical difference is the procedure followed when the buyers do not pay their instalment, but even in that case, an instalment sale is to their advantage.”
 
However, an instalment sale agreement offers several advantages to this class of homeowner.
 
Improved affordability

Because a freelancer or a self-employed person’s income may vary from month to month, the bank will only consider a portion of their earnings. So, even if they qualify for a home loan, they will likely have to settle for a cheaper property or fund any shortfall on the purchase price themselves.
 
Through an instalment sale, up to 100% of their income is assessed. “This gives the purchaser more freedom to choose a property they really want,” says Kriek.
 
Improved credit score

An instalment sale allows a buyer to acquire a valuable asset sooner and improve their credit score in the process. As the property’s value increases and their financial position grows over time, they may become a more attractive borrower. And they do not risk being caught in a rent trap while the values of homes continue to increase.
 
“Many of our clients have been granted bonds on the basis of their instalment payment history and were able to settle our instalment agreement early from bond refinance,” says Kriek.
 
Lower default risk

When a borrower defaults on their mortgage, they face losing their property through a sheriff’s auction, having adverse judgements against them, and being blacklisted for 5 years or more. This impedes their ability to acquire another property and obtain any credit, and may even limit employment opportunities.
 
However, with an instalment sale agreement, they have more options, including negotiating their position and, ultimately, selling the property to pay off their debt. “Even then, they retain a clean record and we have assisted clients that eventually recovered from such a position to buy another property,” says Kriek.
 
Protected by law

As with a mortgage, the contract is governed by the very comprehensive National Credit Act. Another law, the Alienation of Land Act, also applies, ensuring the rights of the parties to the agreement are fully protected. Instalment sales are also registered against the title deed of the property.
 
A growing market

As more people start to freelance or work in other independent fields with irregular income, owning a home through an instalment sale agreement promises a logical alternative to mortgage bonds.
 
“It is apparent that an instalment sale agreement offers better advantages, more protection and greater flexibility to those who dream of owning a home without sacrificing their financial independence,” says Kriek.