Sep 17 2007
What is the NCA?
Posted in Property Finance
The National Credit Act came into effect on the 1st of June 2007 with all Credit Providers being required to comply with the Act in order to continue lending. Its main objectives are to:
– alleviate the over-indebtedness of consumers; and
– regulate the credit industry
How does it affect my home loan application?
The Act requires that Credit Providers conduct a full assessment of the consumers’ credit worthiness and the banks have applied stricter credit policies to fulfill their obligations and avoid the harsh penalties imposed under the Act. More specifically this translates into the following:
- The banks require a full income / expenditure which they are obliged to verify using the Credit Bureau.
- Using this income / expenditure, the banks determine your disposable income (i.e. the amount of money you have left over at the end of every month which is not allocated to servicing any debt or monthly expense). The banks now use this figure to determine the size bond you qualify for as apposed the old system where the banks allowed you to spend 30% of your gross income on a bond repayment.
- The banks require a full assets / liabilities which they are obliged to verify using the deeds office records (This means clients can no longer apply to one bank for a home loan and withhold information regarding an existing bond/s at another bank/s).
- Clients buying into developments where registration is 12 – 18 months (and longer) after bond approval, will be re-assessed by the banks to confirm that their financial situation has not changed significantly, rendering them no longer eligible for the bond. This obviously has significant ramifications for the development industry.
So, is the NCA a good or a bad thing?
While the NCA has certainly had an effect on both the property market in South Africa and the consumer directly, BrayCorp feels that this effect is actually a positive one, including the following benefits:
- Helping to prevent over-indebtedness – With the banks attempting to ensure that no-one becomes over-indebted, it is expected that fewer people will get into financial trouble, losing their properties. Where clients may have previously over-extended themselves and learnt a hard lesson, they may be spared the heartache by being refused finance which they cannot afford.
- Helping to keep the interest rate down – While there are many factors influencing the Reserve Bank’s Repo Rate (and therefore the banks’ prime lending rate), having less overall debt is certainly a contributing factor.
- Stabilizing property prices – With fewer clients being able to get bonds (and therefore fewer buyers) sellers are forced to be more negotiable on their prices, resulting in more realistic sale prices. This is helpful for first-time buyers who have until recently been priced further and further out of the property market. This is also beneficial for investors who may be more likely to pick up a bargain as a seller may have few or no buyers at their show house and / or can no longer afford his/her bond as a result of the interest rate increases.
- Possible increase in rental returns – With fewer people being able to get bonds and / or people qualifying for smaller bonds, more buyers may turn to the rental market since they are unable to buy. This increase in demand may result in an increase in rentals, benefiting investors in the buy-to-let market.
Submitted by Jessica Linde of BrayCorp