New Credit Act will tighten home loans
The National Credit Act, which becomes effective, in phases, from June, will tighten up on all credit, including home loans.
The act will make it even more important for homebuyers to develop a bond strategy.
Gerhard Kotze, chief executive of the ERA South Africa property group, says the act, which many say is designed to primarily protect consumers from themselves, must be viewed against the background of South Africans owing more money than ever before.
Household debt as a percentage of disposable income has shot up to a record high of nearly 70percent, according to the South African Savings Institute.
Kotze says: "In a very real sense, the Credit Act has come just in time because it will stop over-borrowing and reckless lending.
"But it will also mean homebuyers will no longer be able to assume anything about being granted a home loan, even if they have a good job and a spotless credit record."
He says the act will make pre-qualification for a bond vital rather than just a nice-to-have.
"In fact, it will probably mean that buyers - and sellers - should be very wary of signing even a conditional offer to purchase before they have established where they stand in terms of financing the property."
Kotze says that in terms of the act, buyers' ability to secure a home loan will depend not so much on the fact that they have never missed a bill payment, but on their overall credit exposure, with lenders being obliged to make a thorough assessment of borrowers' total debts before agreeing to lend them any money.
Kotze says: "The assessment will undoubtedly take a lot longer than the current credit checks. On top of that, other considerations such as location and the condition of the property will still apply.
"And sellers will not want to wait all that time to see if the buyer can in fact seal the deal."
Kotze believes that home buyers who have been cleared for a home loan are likely to find themselves in a strong bargaining position.