The buy-to-let market reached £15 billion pounds in the UK in 2002 and as a result the buy-to-let bond was introduced. This product became popular when retirees realised that endowments and retirement annuities did not deliver the expected returns. Rent with capital growth became a favourite option for these hard-pressed individuals. BondExcel provides an overview of buy-to-let bonds in South Africa.

Property is now being recognised as a valid asset class along with shares, unit trusts and other investment instruments. This is because buy-to-let, as an asset class, provides capital growth and income returns. It may be added that the returns provided by property have outperformed many other asset classes over the last few years, particularly if one considers that you may not even need a deposit to obtain a home loan for an investment property. Bear in mind that it is not only possible to invest in residential property in terms of buy-to-let, but commercial property offers investors another alternative.

Banks view buy-to-let properties as a valid asset class for their clients and will therefore assist investors to invest in both residential and commercial property. Investment in a buy-to-let property usually takes place once the investors own property is paid off or partially paid. Using this asset that developed over time, investors progress to purchase buy-to-let units. In essence banks do not look differently at this finance, but will take the current or projected rental income into account for calculating the total income of the investor.

The banks will continue to use 30% of joint gross monthly income, including rental income, as guideline for the repayment to income (RTI) calculation. However, banks will question the stability of rental income and will take a conservative view to vacancies.

All the banks offer finance for investors who want to enter the buy-to-let market, but only Nedbank has a branded product with specific features.

That said, investors need a bank-trained bond originator to properly motivate the application and gain approval for the bond. BondExcel succeeds in hundreds of millions of Rands approved home loans per month,