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There has been much speculation over the impact of the National Credit Act (NCA) on the Mortgage industry, with some estate agents even claiming that the NCA will push mortgage approval times from 7 days to two months. Nobody will really knows the full implications until after the 1st June and when the National Credit Regulator (NCR) starts to flex its muscles, but many of these claims are sensationalist scare stories.
The Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. It places greater responsibility on the credit providers to refuse applicants credit if they cannot afford it, explain the reasons why the applicant has been declined, regulate the way credit bureaus do business, and explain in clear and understandable language what the terms and conditions of the loans are.
The NCA is also aimed at a wide range of undesirable practices in the Credit industry, from lenders cold calling potential clients, to the interest rates they can charge these potential clients. It is a good bit of housekeeping that will protect the consumer from these undesirable practices, both before they have borrowed money and whilst they still owe money. Although it is aimed at the industry in general, it will have the largest effect on the lower end of the credit industry, where it will hopefully stem the abundance of credit available in the form of credit cards, store cards and cash loans.
When it comes to the mortgage industry, the main impact will be to stop 'reckless lending' to individuals whom can't necessary afford it, but is there really any reckless lending at moment? If there is, it is certainly not intentional from the banks, they are the party that stands to lose the most from reckless lending – defaults on their loans.
When an applicant applies for a mortgage, banks check the client's application form (on which the client signs as true and correct), their proof of income and then their bank statements to see that this income is coming into their bank account. Once the various checks have been made with the credit bureaus, the banks' credit manager then makes an assessment of the applicants' eligibility for the loan. All these checks are far more intensive for home loans than for any other form of credit transaction because the sums of money are far larger. The worst scenario for a bank is a client defaulting on their loans, therefore they perform every check they can to ensure the chance is minimised, the NCA's threat of allowing clients who have been recklessly lent to walk away with some or all of the loan is an unnecessary threat. Second to this, banks in South Africa are also far more conservative than their US or UK counterparts, and hence there is not too much worry about the 'sub-prime market crisis' happening here as the banks simply don't lend to that market. In my opinion the banks will have more to gain from the NCA as clients will be unable to 'hide' other liabilities when applying for a mortgage due to National Credit Bureau.
Therefore, the NCA will lengthen the time it takes to get a mortgage approval, but only by a day or two. It will make it harder for those getting home loans that hide their other liabilities when applying to the banks – but then they shouldn't get the mortgage anyway.
One of the major drivers of a developed economy is home-ownership; this ability to turn assets into liquid capital is one of the main contributors to American entrepreneurs, and their wealth. The NCA is doing the right thing by trying to restricted the amount of unsecured debt available to South Africans so that they can get onto the property market, and take out (good) secured debt.
Ian Wason: Property24 (http://www.property24.com/Property24...articleid=5261)
The Act introduces new rights for consumers, as well as measures that allow consumers to make informed decisions before buying goods and services on credit. It places greater responsibility on the credit providers to refuse applicants credit if they cannot afford it, explain the reasons why the applicant has been declined, regulate the way credit bureaus do business, and explain in clear and understandable language what the terms and conditions of the loans are.
The NCA is also aimed at a wide range of undesirable practices in the Credit industry, from lenders cold calling potential clients, to the interest rates they can charge these potential clients. It is a good bit of housekeeping that will protect the consumer from these undesirable practices, both before they have borrowed money and whilst they still owe money. Although it is aimed at the industry in general, it will have the largest effect on the lower end of the credit industry, where it will hopefully stem the abundance of credit available in the form of credit cards, store cards and cash loans.
When it comes to the mortgage industry, the main impact will be to stop 'reckless lending' to individuals whom can't necessary afford it, but is there really any reckless lending at moment? If there is, it is certainly not intentional from the banks, they are the party that stands to lose the most from reckless lending – defaults on their loans.
When an applicant applies for a mortgage, banks check the client's application form (on which the client signs as true and correct), their proof of income and then their bank statements to see that this income is coming into their bank account. Once the various checks have been made with the credit bureaus, the banks' credit manager then makes an assessment of the applicants' eligibility for the loan. All these checks are far more intensive for home loans than for any other form of credit transaction because the sums of money are far larger. The worst scenario for a bank is a client defaulting on their loans, therefore they perform every check they can to ensure the chance is minimised, the NCA's threat of allowing clients who have been recklessly lent to walk away with some or all of the loan is an unnecessary threat. Second to this, banks in South Africa are also far more conservative than their US or UK counterparts, and hence there is not too much worry about the 'sub-prime market crisis' happening here as the banks simply don't lend to that market. In my opinion the banks will have more to gain from the NCA as clients will be unable to 'hide' other liabilities when applying for a mortgage due to National Credit Bureau.
Therefore, the NCA will lengthen the time it takes to get a mortgage approval, but only by a day or two. It will make it harder for those getting home loans that hide their other liabilities when applying to the banks – but then they shouldn't get the mortgage anyway.
One of the major drivers of a developed economy is home-ownership; this ability to turn assets into liquid capital is one of the main contributors to American entrepreneurs, and their wealth. The NCA is doing the right thing by trying to restricted the amount of unsecured debt available to South Africans so that they can get onto the property market, and take out (good) secured debt.
Ian Wason: Property24 (http://www.property24.com/Property24...articleid=5261)
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