South Africa’s financial institutions have taken the brunt of the blame for not approving more mortgage finance, which many believe would go a long way to further stimulating trade within the property market. However, with South Africa’s debt-to-income ratios still at a very high level, affordability remains a primary consideration that is weighed up before finance is granted. Aside from new criteria as determined by the NCA, there have been numerous changes in the bank’s weighting of credit risk since the recession, with the implementation of deposit requirements, the increase of declines and a more conservative approach to lending in general. Rudi Botha, CEO of Betterbond, South Africa’s largest mortgage originator, notes that aside from evaluating an individual’s earnings and expenditure, there are other criteria that the banks assess before granting or declining a home loan application. Affordability: “The bank’s criteria in the evaluation of an applicant remains around the affordability and the risk of the applicant when it comes to the repayment of a long term loan,” says Botha. “The ruling that a maximum of 30% of the gross salary may be used for the monthly repayment of the home loan instalment has been around even prior to the inception of the National Credit Act (NCA), and it is still applicable today.” In addition to this, but equally as important, is disposable income, i.e. the amount remaining after the deduction of all monthly expenses from the gross salary. This, amount, says Botha, needs to be more than the estimated monthly repayment of the home loan being applied for. Credit record: Credit bureau ratings are also taken into consideration as they provide a history of the individual’s repayment capabilities. Botha says that credit bureau information would highlight any potential areas of risk that may exist, which would in turn affect the risk rating of the applicant. Botha emphasises the fact that a good credit record is one of the most vital aspects to ensure a successful home loan application. Botha explains that the banks rely on historic repayment information of up to two years, and therefore late or non-payment of monthly accounts may make the repayment ability of the applicant questionable. Botha points out that the banks all have different risk appetite and drive for market share as well as variations on requirements for different types of applicants. “Banks don’t share further information on their scorecards as this is compiled out of numerous characteristics and calculations which are adjusted from time to time as their requirements and strategies change.” In order to ensure a higher approval rate of mortgage finance, Botha’s final words of advice is for consumers to be careful not to take on too much debt, to ensure they live within their means and make payments to retailers and other financial institutions preferably prior to the due date required.
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