|In just over two months the new National Credit Act, which has been phased in since June last year, will be fully implemented and will affect us all.|
It has been said that the new legislation is the most far-reaching consumer legislation to become effective and sets a framework for all credit transactions from micro-loans, home loans, overdrafts, credit cards to household goods finance and everyone from consumers to credit providers of all kinds are going to have to understand the new law.
The intention of the new law is to ensure that credit providers lend money responsibly and that people do not borrow more than they can afford to repay. If people are in over their heads they are now able to apply for credit counseling and the law aims to protect borrowers from unfair discrimination.
Other interesting aspects of this extensive legislation include its impact on advertising in that phrases such as no credit checks required, free credit and guaranteed loans may no longer be used; a credit provider will not be able to enter into a credit agreement without your consent, so if your contract comes to an end it cannot be extended without your signature. It also requires all married customers applying for credit to have their spouses consent.
The new law will also touch the property market from developers to buyers and finance houses from a borrowing and lending perspective. If you consider that owning your own home will probably be your biggest debt it is important that the risk to you and the banks is reduced.
Ultimately the burden of ensuring that credit is extended in a responsible manner falls on the banks and mortgage originators and not the estate agent. Credit providers are responsible for checking a client’s debt payment history, existing financial means, prospects and debt obligations.
One of the major changes is that your bond application will now be assessed on affordability or your total debt exposure and not on whether or not your monthly bond repayment is 30% to 40% of your gross income.
The new system intends to ensure that there is enough net surplus income to pay your home loan installments. While bond applications already include a credit check that reviews your accounts the new process will more extensive and include things such as vehicle repayments, school fees, expenditure on food and entertainment and so on.
It is this thoroughness that has some concerned that it could unduly impact on the property market especially if there are delays or bottlenecks in granting finance. The worry is that it could take longer to do the credit checks and impact on suspensive clauses in sale agreements such as the time required to obtain a bond, which in most cases is 21 days.
I think the more clients accept the stringent credit checks and co-operate by providing full and truthful disclosure of those expenses that banks will not readily be able to check the quicker the process will be.
Buyers can further assist the process by making sure that before looking for a new house and applying for a bond that their finances are in order and that they are careful about how much credit they have.