The recent credit crunch has forced many lenders to review the maximum amount they are willing to lend, especially in mortgages, where 100% financing has now become a thing of the past. Most lenders have now become more strict, requiring the borrower to contribute a higher deposit towards the purchase of property. In Botswana, this has been perpetuated by house prices which have skyrocketed in the recent few years, which now means that 10, 20 or 30 percent down payment required from you works out to be a sizeable amount of money.
The amount of money a lender can advance you is worked out as a percentage of the value of the house, and is often referred to as the 'loan to value' (LTV), and will vary from institution to institution, depending on their credit policies. The additional amount that the borrower then needs to contribute depends on where the cost of the property is relative to the market value. A price lower than the market value means the lender may advance a larger share towards the purchase of the property. As an example, if you are buying a house for BWP 400, 000, with a market value of BWP 500, 000, a lender who finances 80% of market value could be prepared to lend BWP 400, 000. Since the lender is granted the right to hold the purchased property as security against the advanced amounts, they use this cushion to improve their chances of recovering their money if the house were to be sold under stressed conditions, or if house prices were to come down. It is also important to remember that contributing a higher deposit also reduces your monthly repayments, since the amount borrowed will be lower, and may help you own your property within a shorter period of time.
