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…we estimate that well over 300,000 consumers in South Africa find themselves in an extreme over-indebted position, while a further million or more consumers are potentially debt-stressed. The challenge is huge, but the current situation can clearly not be allowed to continue. The impact and cost of over-indebtedness should not be underestimated, and is reflected in social grants being diverted into debt payments; maintenance payments that are not made; municipal service payments not being made; school fees not being paid and, finally, households being further impoverished and denied basic resources – CEO National Credit Regulator.
Has credit become tougher to get with the new National Credit Act? At Wizard we explore all the possibilities.
“Expect home loan approvals to get a little tougher when the National Credit Act comes into force on June 1st,” says Gerhard Kotze of ERA South Africa property group.
But is this entirely true?
The Credit Act is there to prevent people from spending money they don’t have. It’s there to help the banks manage the massive CREDIT DEBT this country has and help stop RECKLESS LENDING by the banks. The act puts banks and other lending bureaus on the spot, with major consequences if they’re found advancing loans irresponsibly (responsible lending ACT 2007).
It’s all to do with what’s known as predatory lending practices and it’s a global issue. What’s more important is that Real Estate professionals and Bond Originators now have an added responsibility in this whole scenario, as intermediaries between home buyers and the banks. Having said that though, consumers/buyers need to watch their credit commitments and tailor their home loan application and the price of the home they buy accordingly.
CREDIT CREDIT CREDIT – Watch that spending people.
What is a CREDIT RECORD?
Your credit record is exactly what it says, it shows your entire credit history which includes what loans you have applied for and what accounts you have opened as well as any negative credit listings where you may have fallen behind on payments or if have a judgment or several judgments against you.
Remember: Poor credit records can be fixed. Bad credit records are not the end of the world.
- Something to take into account is the bond term you apply for. The typical bond loan is over 20 years, but bonds of up to 30 years can be obtained, in which case your monthly costs will be lower but your debt over the longer period would be considerably greater.
- Another thing to remember is the total cost of the buying transaction involved. Fees such as transfer duty, bond registration, conveyancing fees and other costs. It’s a really good idea to include these costs in your bond application if possible. This would make it a whole lot easier for you to buy a property. Remember that the additional cost does increase your total debt in terms of the NationalCredit Act of South Africa. Your rates will also be lower should you include bond costs.
So, before you commit to a property, be sensible; first establish the availability of bond finance based on your credit status.
QUICK TIP: Don't just go and sign that offer to purchase even if it's on condition of sale of your existing property and obtaining bond finance until you know where you stand in terms of financing your property. It all sounds pretty elementary but believe it, when you're in the HEAT of PASSION buying that property, it's amazing what you'll overlook!
How will the credit act affect home loan finance?
The national credit act of South Africa came into affect in 2007, compelling the banks to ensure that their home loan clients do not over extend their credit limit. Previously, the bond repayments were not to exceed 30% of their proven dependable income. The new act will now make the banks legally responsible for checking the applicant’s full credit situation. On bond application, clients will be asked to declare their income as well as their expenses.
This act has forced banks to be fastidious about ensuring that the client has declared all debt, for example car repayments, credit cards, retail accounts and any other debt the client may have; if they have another home loan; or a rental agreement (where applicable) it will also be regarded as a mandatory requirement.
Investors who invest in off-plan purchases now find it very difficult to obtain finance if they have mortgages with other financial institutions, thereby making multi-property ownership finance more difficult to secure.
The simple answer to obtaining mortgage finance is to make sure that your finances are in check as this will enable the bank to make a quick assessment of your affordability.
What the Credit Act means for you?
There’s no denying that credit is a good thing. It gives you that extra edge when you want to buy those things that have alwyas been out of your reach. Without access to these additional funds how would you afford that dream lifestyle?
The problem comes in where debt can quickly spiral out of your control.
So the trick, manage your finances. Allow Wizard to help you manage your finances and utilise your bond account to consolidate your debt.
Only borrow what you can afford
The NCA focuses on protecting people from becoming financially over committed. As such it prevents us from lending money without ensuring that:
- We know your debt repayment history
- You understand the costs, risks and responsibility of your credit agreement
- You can afford to repay your debt
- You have supplied details of your income and expenses when applying for credit