How to Get a Mortgage and Home Loan in South Africa as a Foreigner
South Africa’s property market, buoyed by a favourable exchange rate and picturesque landscapes, is an attractive destination for foreign property investors. However, purchasing property and securing a mortgage as a foreigner in South Africa involves a unique set of rules and requirements. Here’s a comprehensive guide to help foreign buyers navigate the process of obtaining a mortgage or loan in South Africa.
- Also Read: How to Access Loans With No Payslip: Tips for Freelancers, Entrepreneurs and the Informally Employed
1. Understanding the Mortgage Market for Foreigners
The South African mortgage market, also referred to as the bond market, is well-established and offers a variety of products. However, for non-residents and foreigners, the rules are stricter than for local residents. If you’re a foreigner seeking a mortgage, expect to provide a substantial deposit—usually 50% of the property value.
In addition to the deposit, foreign buyers will need to get approval from the South African Reserve Bank (SARB) to proceed with the purchase. SARB oversees the movement of funds into and out of the country to ensure compliance with exchange control regulations.
2. Types of Mortgages Available
Foreigners typically have access to two main types of mortgage products in South Africa:
- Fixed-rate mortgages: These products offer an interest rate fixed for a certain period, generally five years. Fixed-rate mortgages provide stability, as your repayments remain consistent throughout the fixed term.
- Variable-rate mortgages: More common in South Africa, these mortgages have interest rates that fluctuate based on market conditions. This can result in either lower or higher monthly repayments, depending on the prevailing rates.
3. Eligibility and Requirements for Foreign Buyers
While foreigners can legally purchase property in South Africa, there are several criteria to meet before being eligible for a mortgage:
- Deposit requirement: Non-residents must deposit 50% of the property’s purchase price, meaning you’ll need substantial cash reserves.
- Loan-to-value (LTV) ratio: The LTV for foreign buyers is typically capped at 50%, meaning banks will only finance half of the property’s value.
- Exchange control approval: Any foreigner applying for a home loan must receive clearance from SARB. This approval hinges on proving that an equivalent amount of the loan you wish to take has been introduced into the country.
4. Required Documentation
To apply for a mortgage, foreigners need to provide the following documentation:
- Proof of identification: A valid passport.
- Proof of legal residence: This is required if you have a visa or work permit.
- Proof of income and affordability: This includes recent payslips, bank statements, and possibly an international credit check to ensure you can afford the mortgage repayments.
- South African Reserve Bank Certificate: Evidence that you’ve complied with exchange control regulations by introducing funds into South Africa.
If you’re self-employed, expect to provide additional documentation, such as audited financial statements and tax returns, to verify your income.
[Image Credit: Pixarbay]5. Working with Banks and Mortgage Brokers
In South Africa, foreigners can approach banks directly or work with mortgage brokers. Some of the leading banks that offer home loans to foreigners include:
- Absa Bank: A subsidiary of Barclays, it provides services to expats, including home loans for non-residents.
- Standard Bank: The largest bank in South Africa, offering tailored mortgage products for foreign buyers.
- FNB (First National Bank): FNB’s “Foreign Choice” mortgage product is designed specifically for non-residents.
Mortgage brokers, such as Ooba, can also assist with comparing loan offers from various banks to help you secure the best deal. Brokers often have access to a broader range of products and can simplify the mortgage application process by handling much of the paperwork on your behalf.
6. Legal Considerations and Costs
Foreign property buyers must be aware of the legal requirements and costs associated with purchasing property in South Africa. Here are a few key considerations:
- Voetstoets (sold as-is): South African properties are sold voetstoets, meaning the buyer accepts the property in its current condition, including any defects. It’s crucial to arrange for a thorough property inspection before signing the sale agreement.
- Transfer duty and bond registration fees: These are additional costs that buyers must budget for. Transfer duty is a tax on property transactions, while bond registration fees are payable to cover the administrative costs of registering the mortgage bond with the deeds office.
- Exchange control regulations: Foreign buyers are limited in the amount of financing they can access locally and are required to bring funds into South Africa for the down payment.
7. The Application Process
Here’s a step-by-step outline of how to apply for a mortgage in South Africa as a foreigner:
- Decide on the mortgage type – Fixed or variable rate.
- Contact banks or brokers – Work with a bank or mortgage broker like Ooba to explore the loan products available to foreigners.
- Submit paperwork – Provide the required documentation, including proof of identity, income, and compliance with SARB regulations.
- Get a Reserve Bank approval – Ensure SARB has approved your loan before proceeding with the property transaction.
- Agree on purchase price and pay deposit – Once your loan is approved, you’ll need to pay the deposit to secure the property.
- Finalise the transaction – Your lawyer will handle the transfer of the property and the remaining funds.
8. A Smart Investment for the Future
Despite the additional hoops foreigners need to jump through, purchasing property in South Africa remains an attractive investment, particularly given the favourable exchange rates and scenic locations. With the right preparation, legal guidance, and financial planning, you can secure a mortgage and begin enjoying your dream home or investment property in South Africa.
Always seek professional financial advice before making any significant investments, and ensure you fully understand the legal and financial obligations involved.