These days, getting any money out of a bank feels like a minor miracle.
Approvals for credit cards and overdrafts are also down as banks increasingly are hit by unpaid debts. South Africans, who have been debt-overloading over recent years, are struggling with installments as the economy cools and many lose their jobs or income.
So how do you convince the bank to lend you money?
1. Make sure your credit record is squeaky clean:
Once a year, you have the right to get your credit record from a credit bureau for free.
Shops, banks and other institutions give information about your credit use and transactions to credit bureaux, who put the information on file. Official records like court verdicts are also put in your credit record.
An estimated 80% of the information in SA credit records is usually positive: accounts paid on time etc.
But if you have negative information on your credit record, you will struggle to get credit in this environment.
Before you contact the bank, look at your credit record and make sure that all negative information has been taken care of.
Make sure you settle any unpaid debts speedily and keep all documentation as proof.
If the information on your credit card is incorrect, you have to challenge the credit bureau, who is legally obliged to remove it until the query has been resolved.
2. Save for a deposit:
These days, a deposit on a house is not a nice-to-have. Few of the banks extend 100% loans anymore and they are demanding significantly higher down payments. According to recent data, the average deposit as a percentage of the purchase price was 24.1%, compared with 16.4% only last year.
3. Do your homework on how much you can afford:
Before you approach a financial institution about credit, make sure you have realistic expectations. Rejected applications may stay on your record.
In the case of home loans, the banks used to use a rough guide that your monthly home loan installment should not be more than 30% of your salary.
The implementation of the National Credit Act has changed all that.
The NCA is very strict that banks take all the necessary steps to ensure that you can really afford the loan.
If you can’t afford to pay installments later on, the NCA might charge the bank with “reckless lending” (and even write off the loan) if it is found that the bank did not do its homework to make certain that you could really afford the loan.
In the past, banks used to look only at your total income. Now they have to focus on your disposable income. They will go to some lengths to ascertain what all your monthly expenses are and whether you have enough money left to buy a property. This is called an affordability calculation.
Get your own budget in shape before you apply for a loan.
Eliminate luxuries, cancel all memberships that you don’t use and review all short-term spending that doesn’t build your wealth. Cancel shop cards – even those you never use. The banks could view them as available credit lines; money you may access.
Try to settle all possible debts well before you apply for a loan.
The banks also have to make sure that the property you buy holds enough value to justify the loan.
4. Make plans for the hidden costs:
Before you make a home loan application, make sure you can explain to the bank how you will fund additional costs like transfer and registration costs, as well as administration costs and stamp duties.
Remember also that owning a property will bring additional costs like rates and taxes, water and electricity as well as home insurance.
You will also need a life assurance policy, which will settle the outstanding home loan debt if something happens to you. You can cede a current life policy to the bank, however.
It will be worth it. While house prices are still expected to slump over the next couple of months as more people lose their jobs and flood the market with properties, experts expect the market to pick up its head next year. Do whatever it takes to clean up your credit record or increase your disposable income.
Buying now could bag you the bargain of a lifetime.
Has the implementation of the National Credit Act affected you? Share your thoughts in the box below.