You’ve signed for your dream home, done your homework, and confirmed you can afford the repayments. You’ve even pictured that perfect lounge suite in the family room. But then, unexpectedly, the banks decline your application—not due to affordability, but because of risk. Risk, in this context, refers to an internal scoring system used by banks, which takes into account various factors like historical data on home loans not being serviced, the volatility of the industry in which you work, your employment history, or the fact that you’ve paid in cash or are self-employed. The list of potential reasons goes on.
Enter the “kustingsbrief,” or “kissing letter” when directly translated. The kustingsbrief acts as a bond, but instead of being issued by a traditional bank, it is provided by the seller of the property. The seller permits the sale—essentially “sealing the deal with a kiss”—by allowing the purchase price to be paid by the buyer in instalments or within a specific timeframe. In return, the seller registers a bond against the property as security at the time of transferring ownership to the buyer, similar to how a traditional mortgage works. In this scenario, the seller essentially takes on the traditional role of the bank.
This arrangement benefits both parties:
- For the seller: The property is sold, which is especially advantageous if the sale is urgent, such as in cases of emigration. The seller’s security is the property itself, which can be reclaimed in the event of a breach by the purchaser, after following the standard legal processes if an instalment remains unpaid.
- For the buyer: They become the new owner of their dream home and can make affordable monthly payments, despite not being considered “risk-worthy” by traditional banks.
One important consideration is that if the seller has an existing mortgage, it would need to be cancelled, as traditional banks are unlikely to consent to another form of bond being registered against the property. Additionally, the seller would want to avoid being second in line to any proceeds should the buyer default on payments.
This option represents a true win-win scenario for both the seller and the buyer, allowing them to work together to achieve their respective goals of selling the property and acquiring a home.
Should you require further information or assistance on this topic, please contact us at info@tuckers.co.za, 011 897 1900, or 076 777 1920 (after hours).
This article was contributed by Hayley Appel of Tuckers Attorneys.