20/02/2025
In South Africa, once a buyer and seller sign an Offer to Purchase (OTP) that is suspensive to bond financing, it becomes a legally binding agreement, subject to the condition that the buyer secures a bond within a specified time frame. All parties must therefore be able to prove that they have done all they can to obtain financing. One can not simply accept a decline from one bank and move on. It is therefore important to apply through various banks so that you can weigh up your options and prove that you have done everything to obtain the financing.
It is crucial for buyers to understand that this condition is not linked to any specific interest rate.
The OTP outlines the agreed purchase price, terms, and conditions, including the suspensive condition of bond approval, meaning the contract will be automatically void if the buyer fails to secure the necessary financing within the stipulated period.
What buyers must note is that the bond approval process does not guarantee a particular interest rate. The rate is determined by the financial institution based on various factors, including the buyer's credit profile, the loan-to-value ratio, and market conditions at the time of approval. As such, while the buyer may be approved for the required bond amount, the interest rate applied may differ from what was anticipated at the time of signing the OTP. Buyers must therefore be prepared for possible fluctuations in interest rates, which could affect their monthly repayments and overall loan terms.
It is essential for agents to explain this to prospective buyers at the time of signing.
