Banking groups in South Africa have been accused of “lacking consistency” when it comes to approving mortgage bonds and that the criteria applied by the different banks when assessing an application make it confusing and difficult for estate agents who are trying to conclude a sale.
Michael Bauer, managing director of IHPC, says that agents will check affordability levels, payment profiles, credit scoring and do a full credit check on a buyer prior to submitting an application and when the application is rejected, these agents can find no reason for the rejection.
“In a country that has a desperate need for housing, these rejections and delays are extremely frustrating and cost developers large sums of money because they cannot sell the properties,” says Bauer.
IHPC says that its Bardale Village, near Kuils River in the Western Cape is a development where these inconsistencies have been most apparent. Despite the difficulties with banks, Bauer says that enquiries at the development have increased by 70% compared with last year and he sees this as a clear indication that people are keen to buy in the current environment where interest rates are at their lowest level in more than 30 years.
“However, the stricter lending criteria applied by banks, along with the provisions of the National Credit Act means that securing sales remains difficult,” says Bauer. The Bardale Village development is aimed at people earning a combined salary of about R12k a month.
“Most banks do have a niche product for affordable housing that provides interest rates well below prime and, in some cases, bond repayments are fixed for the first five years. This is a genuine contribution to the housing shortage in South Africa and should be exploited by first-time buyers who qualify for these niche products,” he says.
He says that the difficulty facing developers is being able to deliver a home for about R400k so that people with a combined income of R12k a month are able to qualify for a bond.
“The land prices, the high costs of installing services and infrastructure and then building the homes means that it is becoming virtually impossible for developers to provide a home that costs less than R400k,” he adds.
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Banks are the once contributing to the slow property sales, I was declined by FNB on with R 125,000.00 for vacant land selling R460000 in Centurion. Instead they did valuation and say the land is worth R250,000.00. What I don’t understand is that my affordability was never considered and the average house value there was not considered as well. - Ben
I wish to comment on the above as this has been my view all along. It appears to be brutally honest that Banks use something that you do not have, no blacklisting, no adverse payment profile and then it is affordability even if your disposable income comes in at the affordable rating/percentage prescribed by the NCR. We have a housing crisis not all individuals wants to purchase second properties and where does the charter come in and the constitution which states that it is your right as a human being , the risk assessment is poorly done because the letting/rental amounts individuals are forced to pay exceeds bonds repayments, help us understand the logic behind this as the risk managers (unqualified in most cases) as they rely on system generated information which is sometimes not a true reflection.
The second issue: No allowances are made for long term and short term debt whereby your profile would drastic change within the next 3 months, because it is system generated they treat it as the only tool.The banks lack creativity and how long will we complain and not take them on from common knowledge from people who are employed by banks, they are in most cases the worst credit risks, living literally from pay day to pay day and this is not an issue because they are clear on the credit bureaux. I know this as I worked for a bank and my mom as well. - Andrea
I agree with Andrea. I also tried at various banks no luck. My application was always declined because of affordability. These financial institutions all do credit checks. I also did a credit check on me and my wife. With me there were 3 institutions with incorrect information at Trans Union and at Experian and my wife with 1 at Experian totaling R2500-00 still showing as expenses(installments) which are already settled or terminated. The bad thing about this all is that Banks all thinks that the information at the Credit Bureau's are the truth and do not query any information with the applicant. ( ZERO communication with the people working with your application)The interesting thing regarding these false information at the Bureau's is that the Banks (those that grant these loans ) do not supply the bureau's with up to date information. So how on earth can banks evaluate applicants if they themselves are guilty of reckless behavior regarding very important financial data. No wonder the percentage of loans granted are so low . I have seen with my own application that banks just use the information the credit bureaus supplied. I even send them proof of the wrong information at the credit bureau's but it made no difference. Good luck to others trying to get a loan!! - Sarel
I can concur with most of the comments thus far… The banks change their lending criteria weekly, if not daily and although that is well within their right to do, they should communicate this properly to agents, staff and the public. The biggest problem, however, is that public are not educated properly on the numerous factors (I believe as many as 22?) the bank takes into consideration when assessing an application. The other point raised is the accuracy of the credit bureau data. I recently received a letter from one of the major banks threatening me with legal steps and that my record will be affected adversely. I did not pay that particular loan one month, but that was planned for and budgeted for well in advance as I was 27 installments (that’s right twenty seven!!) in advance. Now my credit record can be affected due to one incompetent official’s poor judgement… - Marius
I previously commented on the article below and little did I know I will have another run in with Standard Bank. I optained a property or I should take ownership of a vacant stand due to a divorce settlement and Standard Bank refuses to take my ex husband off as co owner. The reason is due to credit scoring issues but I am liable for the monthly repayment . I am paying joint life cover as a result of this which I feel is illegal as I will not be able to make a claim if something happens because the divorce decree which is a court order states otherwise. The Reserve Bank could not assist me and the outstanding bond amount is like R111 000.00 which I pay R1250.00 including insurance. This is just a typical, practical example of inflexibility as I advised them what do they do in a case like this and they only refer to credit scoring. This response was not good enough for me and bottomline it is illegal what they are doing. - Andrea