Regards
Lynne Baker

1. The end of ‘spreading debt across the banks’
Previously, if a client qualified for a R1m bond and he / she had a R1m bond at, for example, FNB; the client would apply for his next R1m bond at, for example, ABSA. As a result, ABSA would not necessarily be aware of the client’s existing bond at FNB and would grant the new R1m bond based on the client’s income.

This ‘loophole’ has since been closed under the NCA, which ensures that the banks perform a reasonable investigation into the client’s financial situation. This includes a Deeds Office Search (which would pick up all the client’s existing bonds) and a Credit Bureau Enquiry (which gives the bank an indication of both your average monthly debt repayments as well as your monthly payment ‘track record’). The Credit Bureau Enquiry brings us to the 2nd effect the NCA has on the banks’ qualification process:

2. The end of qualification of a client based only on his / her income
Previously, 2 clients who earned the same income qualified for the same size bond. Under the NCA, where the banks now look at both income and monthly expenditure, these 2 clients may now qualify for 2 different size bonds. Client A may have an existing bond, vehicle repayments and a personal loan, whereas, Client B may have no existing bonds or personal loans and his / her vehicle is paid off. As a result Client B will have a higher disposable income allowing him / her to qualify for a larger bond than Client A.

As a result of these 2 effects, many clients who were previously being granted bonds, may now be declined, resulting in a decrease in the number of bonds being granted. What we have also seen, however, is that clients who were previously declined (due to the old rules of qualification) are now being assessed taking their entire financial situation into account, resulting in the banks now granting bonds to these clients. These are generally high income clients with higher disposable income than the average salaried person.

This effect may, however, be counterbalanced by the effect of the NCA on the average first time buyer. These clients tend to be young professionals just starting out, generally salaried individuals, who do not have significant disposable income to allow them to service a bond required to buy an entry level property in South Africa.

So, while the NCA has certainly affected the number of clients able to qualify for bonds, BrayCorp believes that the NCA will prevent clients from becoming ‘over-indebted’ and hopefull the reduction in debt will help with our rising interest rates.

That is to say, that all trustees / members / shareholders are required to provide a full income / expenditure in the same manner as an individual applying post-NCA, however the protection of the consumer at which the NCA is aimed, does not apply to these entities.

In other words, should a CC, Trust or Company decide that the bank has ‘recklessly lent’ to them, they are not protected under the NCA.