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CREDIT HISTORY CRITICAL FOR HOME BUYERS

According to Ooba, the latest statistics from the Credit Bureau Monitor’s 2010 4th quarter report reveal that only 53.3 percent of South Africa’s credit-active consumers are classified as “in good standing”. This is an alarming statistic, given that the banks are adopting a very conservative approach to lending, and are scrutinising credit history as a preliminary step before even considering any bond applications. The result is that credit rating is playing a more critical role than ever in influencing the bond decline rate, says Carol Reynolds, Pam Golding Properties area principal in Durban North and La Lucia.

“Essentially, the two key factors that will impact on a bond application are affordability and credit record. If an applicant does not have a clear record, this will adversely impact his/her chances of obtaining finance. It is therefore prudent for purchasers to clean up their credit profile before embarking upon house hunting,” she says.

Reynolds says the best way of upholding a favourable credit rating is to ensure that all accounts have been paid timeously, and that any judgements have been rescinded. A black listing can remain on a credit profile for two years, so the sooner accounts have been settled the better. It is also important to follow up with the relevant credit providers to check that records have been cleared post-settlement.
“Against this backdrop of conservative lending and deterioration in consumer credit records it is not surprising that the residential property market has been slow to show any marked signs of recovery. Indeed, while there have been sporadic bouts of activity, prices generally have remained flat, while the bond acceptance rate has only marginally improved. On the whole, we are noticing more activity in the affordable price brackets, however, this activity is being negatively impacted by poor credit profiles. Essentially, buyers may often be willing, but not necessarily able to obtain the requisite finance to pursue any transactions,” says Reynolds.

As a result she recommends that prospective purchasers try to ensure that they are deemed to be “A” grade purchasers by virtue of the following three imperatives: a clear credit record; the ability to buy without having to sell first; and finally, a pre-qualification from a bank or mortgage originator. If buyers arm themselves with these three tools, they will be able to negotiate better prices on potential properties because sellers will be satisfied that they mean business. The three sales drivers from a seller’s perspective are price; calibre of purchaser, and ‘cleanliness’ of the terms of the offer. If a buyer is pre-qualified he/she becomes highly sought after and if the purchaser is then able to offer clean and simple terms, price becomes more negotiable. It is a simple case of both banks and sellers assessing the risk in the potential deal – the less risky the transaction, the greater the chance of it being accepted by the seller and financed by the bank. 

Adds Reynolds: “On a positive note, there is a sense that the latter half of 2011 may see renewed activity in the marketplace, but this must be viewed within the context of the lending climate. Strict lending continues to keep a lid on price inflation, and while the number of units sold may start increasing, it is unlikely that prices will follow suit.”

Issued by Gaye de Villiers


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