|DURBAN (July 02) - Early market feedback from the June 1st implementation of the National Credit Act suggests greater awareness among sellers to pricing sensitivity of their home when listing and to cash flows of consumers funding their new property purchase from the proceeds of a previous sale. |
However, the effect of the now reconciled 28-day strike, which has reduced Deeds Office processing of property transfer to a near standstill, has muted the overall market effect of the legislation aimed at tightening consumer credit.
General consensus of the act’s overall effect is that of some credit marginal buyers being turned down while others are now purchasing at lower prices. This is most evident in the Upper Highway area where Dave Jones of Acutts Hillcrest reports a strengthening rental market, primarily among younger tenants than previously, and purchasers refocusing in the price range from R1,5m to R1,3m.
Chris Pearson of RE/MAX Address says, born from the belief of more rigorous affordability ratings being handed down by the lenders, some of his more serious sellers are now placing greater store on the effect of affordability by accepting property valuations instead of previously lumping a further 10 or 15 percent on the recommended listing price.
Bruce Swain, CEO of Leapfrog, says extra processing stemming from the new act will slowdown getting finance and transfers through. “These issues have serious cash flow implications for consumers who are funding their new property purchase from the proceeds of the previous property sale.”
Saul Geffen, chief executive of mortgage originator MortgageSA, moved quickly this week in issuing a media release advising people to continue to apply for homes loans as normal and not ‘disqualify themselves’ by not even applying.
Since the act’s implementation, Geffen said some prospective homebuyers appeared to be shying away from applying for finance in fear of the more stringent lending criteria over riding their applications.
“The NCA is designed to protect consumers and requires a deeper scrutiny of a person’s financial position than previously. But what we have seen so far is that people that have a sound financial position are getting home finance with no trouble. Most people are still qualifying for home loans.
"The level of declines has increased marginally, but the real effect is the slightly longer process as it requires a little more supporting documentation.”
Geffen said it was important for consumers to understand they benefited from the act in that it protected them against reckless lending and over indebtedness. “Maximum levels will now be set for interest rates, fees and charges levied by lenders.”
“And the Establishment of legislative bodies like the National Credit Regulator (regulates the industry and enforces compliance) and the National Consumer Tribunal (conduct hearings and issue fines) will give consumers a greater sense of confidence that they are represented and have avenues of recourse.”
Geffen strongly encourages people to apply for home loans as per normal. ‘It’s now more important for buyers to get pre-qualified to find out if they qualify for home finance and how for much. This will give them certainty in knowing what they can afford and give sellers a greater deal of confidence in accepting an offer.”
Banks will require all information pertaining to existing debt so that they can better understand what homebuyers can afford. This means full disclosure of debt exposure and monthly expenditure including a comprehensive submission of current monthly budgets including all existing debt via retail accounts will need to be submitted.
“Certain homebuyers who are able to prove higher disposable income will be in a better position when applying for a home loan than if they had applied on the gross income basis, the main criterion used before the NCA.
“Conversely, other home buyers will find that they have less disposable income and will therefore not qualify for the level of funding that they may have previously obtained.”