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
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.