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Get your home loan before the credit amnesty

Many consumers are delighted at the thought of the credit amnesty that is being organised by the Department of Trade and Industry (DTI) and the National Credit Regulator (NCR) and is likely to become effective before the end of the year.
 
But prospective homebuyers should not be too quick to celebrate, says Rudi Botha, chairman of BetterBond, SA’s biggest mortgage origination group, because the amnesty could actually make it more difficult for them to obtain home loans than it is now.
 
The amnesty, which still has to be approved by Cabinet, would involve the once-off complete removal of all adverse credit information listings by SA’s credit bureaux - irrespective of non-payment – and the ongoing removal of all paid-up adverse listings and paid-up judgments, he says.
 
“It has been estimated that this would immediately affect about 1,6 million people who have impaired credit records, and many would no doubt see it as a good move, since many credit applicants – including home loan applicants – have been turned down in recent years for apparently minor ‘black marks’ on their records.
 
“However,it is worth considering that when the amnesty was first mooted by a committee of the National Council of Provinces at the start of the year, the banking industry immediately said it was ‘totally against’ the idea and has strenuously maintained this stance to date.”
 
Banking Association MD CasCoovadia has been quoted as saying that it is unreasonable to expect banks to lend money when there is no information in the credit bureaux, and that their response to all these records being scrubbed will either be not to lend money or to “price for the additional risk”.
 
Meanwhile Mark Seymour, chairman of the Credit Providers Association, has warned that removing “blacklisted” credit providers from the databases of the credit bureaux  will make all credit providers more cautious when lending money because they will find it much more difficult to assess creditworthiness without records.
 
“And therein lies the potential problem for homebuyers trying to obtain home loans after the amnesty,” says Botha. “Although it is unlikely that the banks will completely shut the doors on borrowers, they will not be able to tell the difference between those who have previously had problems managing their credit and those whose credit records are genuinely clean – and the latter could end up being penalised by having to pay higher rates of interest on their loans as the banks cover their additional lending risk.”
 
Consequently, he says, anyone who has been sitting on the fence about buying a home would be well-advised to make a decision to do so now, before the amnesty is implemented.“If you do have a clean credit history, so much the better, as you will probably be able to secure a loan at a favourable rate, especially if you seek the advice of a good mortgage originator.
 
“But even if you do have some black marks on your record, now is the time to clear them up and apply for a loan, as you will at least have proof to show lenders that you have done something positive and responsible about putting your finances back on track. And that is likely to impress them a whole lot more than the blank slates they will probably be facing by next year.”


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