Property investors are making use of deposit guarantees as an alternative to cash deposits.

In a statement on Tuesday, Lombard Insurance said property investors were understandably loath to liquidate their investments merely to finance the deposit on a property purchase.

This had resulted in alternatives and interim finance mechanisms such as deposit guarantees which replaced the cash deposit required between signing a sale agreement and the payment of a purchase price of a property.

According to Antony Solomon of Lombard Insurance, one of the benefits of deposit guarantees was the ability they afforded residential buyers to purchase homes immediately after the sale of existing properties.

“Buyers don’t have to wait for the proceeds of the sales before they can put down deposits on their new properties.”

Deposit guarantees were also tax efficient.

“The interest earned on cash deposits is not only generally quite low but is also subject to income tax, making the net return to the purchaser very paltry.

“Conversely, the cost of deposit guarantees is, in the case of a purchase for business purposes such as a rental enterprise, a tax deductable cost in the production of income.”

He said it was also, in all circumstance including private home purchases, a tax deductable expense when calculating capital gains liability.

“By offering astute property buyers an intelligent and cost-effective deposit funding alternative, we believe deposit guarantees will help to attract more qualified and serious buyers to the property market.” - Sapa

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