Credit Act's impact on home loans

[Dave A]

Good grief. You can tell Steven Jones has only recently joined the ranks of the self-employed. The self-employed have never had easy access to credit except for the past few years. It's really back to normal in that respect.

Some of those interest rate quotes are truly shocking though

Having had considerable experience of banking's cautious nature, their reaction is not entirely surprising to me. But I've been looking at the risk side for banks quite closely now. I can't help feel we're in a stage similar to when the "new improved" LRA was introduced.

At first everyone thought it was near impossible to dismiss staff. Not true - it's not difficult at all. You just have to follow procedure.

It's much the same with the NCA. Follow procedure and it looks like you're going to be OK. Not that far off business as usual, in fact. Now all we need to do is master that procedure.

In saying that, the one thing I think that may be something of an irritant for banks are the debt-rescheduling provisions. Ultimately though, they'll get their money, just not necessarily as per original plan.

The other danger is gov decides to change the rules. There is some rather wide scope there. But if banking carries on with its current course, I suspect that gov is going to discover that dancing strikers aren't the only power group they need to pay attention to.

[Eugene]

It's much the same with the NCA. Follow procedure and it looks like you're going to be OK. Not that far off business as usual, in fact. Now all we need to do is master that procedure.

In saying that, the one thing I think that may be something of an irritant for banks are the debt-rescheduling provisions. Ultimately though, they'll get their money, just not necessarily as per original plan.

I agree with Dave on this one. The re-scheduling part (and the ignorance of our common law principles of the law of contract), might have serious implications on many business's cash flow. Sure, all companies make provision for extending periods of loans etc. BUT you can now have the scenario where a monthly instalment is being reduced to a fraction of the normal contractually agreed upon monthly instalment.

[Eugene]

The brighter side of the National Credit Act

Amid all the worry about the negative effect the implementation of the National Credit Act (NCA) is having on the property market, there is a bright spot - the likelihood that there will be far fewer deals cancelled for want of a home loan. Lew Geffen, chairman of Sotheby's International Realty South Africa, says the requirements of the NCA are such that in most cases it is taking far longer than before for buyers to obtain home loans.

"But sellers can take comfort from the fact that buyers are less likely to make frivolous, time-wasting offers now on the off-chance of getting a bond, and that deals are far less likely to fall through now once a buyer's loan has been approved. "This means they can confidently go ahead and shop for another property themselves." Indeed a bigger worry for the market now, Geffen says, should be the strong possibility of another interest rate increase in August.

"Another 0,5 percentage point increase would take the total since last year to 3 percentage points and could well be the 'straw that breaks the camel's back' - leading to a sharp increase in foreclosures and repossessions.
"Based on previous experience, we know that a 3 percentage point change in interest rates takes to cause a major shift in the market, and we're pretty close to that now - especially if fuel prices and inflation continue to rise, too."
Such a shift, he notes, could force many existing homeowners to try to sell to avoid foreclosure, flood the market with stock and put severe downward pressure on price growth.

"However, this possibility also highlights the positive side of the NCA, which will prevent people from becoming 'over-borrowed' in future and protect them from the likelihood of losing their home even if interest rates do rise."

• Credits or Article Source: Property24.co.za
• Posted On: 06 July 2007

[Dave A]

I am continually impressed by property professionals' ability to find the upside in adversity. (And no - I'm not being sarcastic, I genuinely mean it).

[Eugene]

Seems like the old saying:

For every problem is life... there is a solution, which is simple, straight, neat, to the point and wrong...