Buying properties to get slower?
- Will the National Credit Act make buying property slower? It depends who you ask.
Mortgage originators have refuted the fear that the new National Credit Act would drastically slow down the ability to buy property, although one realtor remains sceptical.
The act sets a framework for every type of credit transaction, including mortgage bonds, micro loans, overdrafts and store cards and the final phase will be implemented on June 1 2007.
Berry Everitt, Chas Everitt MD said the new legislation would mean that house buyers would have to wait more than two months for their mortgage bond application to be processed.
Already, banks and other lenders are starting to implement the provision of checking a borrower's total indebtedness before granting their loan, maintained Everitt.
"To do this, they have to source information about all and any of the borrower's current personal loans, vehicle finance agreements, higher purchase agreements, store cards and micro loans, as well as existing home loans, from each and every other lender involved."
Everitt added that there is currently no consolidated database that prospective lenders can go to for this information so it will take much longer for banks to approve home loans.
Bond originators, however, say that house buyers won't have to wait as long as Everitt suggests for their applications to be processed.. They explained that, currently, it takes around five to seven working days for final approval of a home loan.
"Applications forms will get longer and more documentation will be required explained Ian Wason, Bondbusters CEO, who estimates the total processing time to go up to about ten working days.
Mortgage SA CEO Saul Geffen said there would be a slight delay in the approval period but clients with a greater exposure to credit would be affected more than others.
Currently, banks use a borrower's gross income to determine if they can afford the monthly repayments. Once the act is implemented, banks will have to check all forms of credit that the client is exposed to and this will change the application process, explained Geffen.
"It is too soon to judge how the act will affect the time it takes for a mortgage bond to be granted," said Charl Bruyns, financial director of Betterbond.
He explained that a working committee, made up of the big-four banks and mortgage originators, are currently discussing the process of implementing the act.
"Everything depends on the next month of negotiations," added Bruyns.
John Boland, manager of productivity and compliance at Mortgage SA reckoned the length of the approval process depends on how much time the banks will spend on evaluating the application.
"Each bank will choose to operate differently but there is no need for the process to be any longer than usual," he added.
Leon Barnard, Standard Bank's director of home loans, said delays would be marginal.
"The act states that banks have to be responsible in their lending. There is no standard check box that has be completed before a loan is approved so processing times will vary, depending on how each bank interprets the act," he said.
A national database of credit agreements is currently being set up and all banks have automated data feeds into it, said Barnard.
The National Credit Regulator who will receive information about credit agreements from the credit providers and credit bureaux will maintain this register.
The register will "list all borrowers' outstanding loans and other credit obligations and the bank will use it to assess whether clients can afford to take on more debt, before giving a loan or extending credit", he explained.
The process will be more rigorous, requiring more detail but it won't take longer, said Mark Boshoff, Nedbank's head of mortgages support.
"At any point in time, we can check the total indebtedness of the client and determine what he has signed as surety," he added.
Boshoff advised clients to be watchful of their credit record and to make sure
their finances were in order.