Home's where the NCA is
MANY people who are trying to secure a home loan rue the National Credit Act (NCA) for making it near impossible to gain approval for a mortgage.
Soweto's Ndingilizi Mkhwanazi is one such consumer who is convinced the NCA is too harsh since she has been unable to secure a home loan though she is able to repay her debts without much trouble.
Legal and Tax Services, legal manager at Yusuf Boda says if consumers understood how the NCA process worked, they could navigate the law in a way that empowers them to get a loan they can afford to pay off.
Boda says the NCA falls in line with the government's drive to strengthen protection for the man on the street.
The NCA forces banks to be transparent about their reasons for granting or not awarding a loan and seeks to prevent irresponsible or predatory lending, Boda says.
"These are all legal protections that one did not have in the past. In practical terms, the act also means that ones creditworthiness and indebtedness are looked at in a slightly different manner," he says.
In the past, Boda says, banks would evaluate your credit record, income and the property you wanted to buy to establish whether to grant a loan to you and the size of the loan. They would score your creditworthiness using their scoring tools.
That has not changed much, but the NCA demands that a bank does an even more stringent evaluation of an applicant's spending and payment habits history to gain a clear picture of what his/her level of indebtedness is, Boda says.
"That process aims to determine how much more debt you can afford to pay off," he said.
Boda says the major change the NCA brings is that lenders must now look at consumers' disposable incomes when making decisions about awarding credit.
He says lenders previously looked at gross household income, with 30% of the income being generally accepted as the ceiling the debt applicant could afford to carry.
But now consumers will not be able to secure a mortgage that exceeds their disposable income.
He said: "The aim of the NCA is to protect you from becoming over-indebted. If you have multiple open accounts - such as other loans, credit cards or store accounts - the monthly repayments could mean that Mkhwanazi failed the affordability test for the home loan. As a result the bank might offer you a smaller home loan or decline your loan altogether.
"To maximise your chances of securing your loan be sure to pay off [as many] of these accounts that you can before submitting your home loan application to the bank."
Boda says if consumers can afford the loan they are applying for and have an untainted credit history, the NCA should not have too much of a negative effect on their application.
"Sure, the approval process takes a little longer than it did in the past. But securing a home loan is something best done slowly and carefully in any case," Boda advises.