New National Credit

Private Property South Africa
Denise Simpson

How will this affect home loan finance?

The New National Credit Act is set to come into effect towards the middle of

this year, and the banks now need to comply to ensure that their end-user

mortgage clients do not over extend their credit limit.

Previously the normal rule for clients to apply for a home loan was that the

bond repayments must not 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 the mortgage bond application, clients will be asked to declare not only

their income, but their expenses as well, whereas in the past, what was declared

was often quite vague. With the new act, the banks will have 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; and a rental agreement (where applicable)

will be a mandatory requirement.

Investors who invest in off-plan purchases may find it more 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

on your affordability. The act is a necessary evil as it does protect the

consumer, and with more middle-class people earning better salaries and wanting

to own their own home, it is imperative to ensure that they do not fall into the

trap of easy credit.

The interesting part about the new act is that if a bank does allow a borrower

to over extend on their credit after disclosure of their financial situation,

the bank is then placing itself in a very vulnerable position. The bank could be

sued by the borrower should the debt result in the borrower not being able to

repay that debt, as well as incurring a possible fine for contravention of the


It also works in the bank's favour. In the case where disclosure from the

borrower is not accurate, this could result in repossession of the property and

the client being blacklisted.

An advantage of the act is that it will become more important to get a really

accurate valuation on a property that you plan to sell before deciding to buy a

new home.

The only negative thing about the new act is that turnaround time from the

banks, which is currently five to seven days, may take longer, so giving answers

on a client's credit-worthiness might be delayed. This means that when signing

an offer to purchase, the timing annotated on the sale agreement will be

crucial. If too little time is allowed, this could result in the sale agreement

falling through. Therefore, this a crucial point that homebuyers need to

remember to negotiate with the seller of the property.

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