What is the main lesson that home purchasers now have to take to heart if they are to apply successfully for a bond under the new Credit Act rules?
Tony Clarke, MD of Rawson Properties, says that the lesson coming through to him is 'Prepare your application documentation thoroughly. If you do not, you will be sent back to square one and may well actually lose your chance of getting a bond'
In many instances, said Clarke, if the applicant wants to be sure of success, he should also cancel as many of his store accounts, credit cards and other credit facilities as possible.
'The reason for this,' he said, 'is that banks now look at what they term the applicants disposable income, not their combined earnings as in the past. In other words, this means that the banks now calculate the potential loan on how much money the applicant might have left over after meeting other essential expenses '“ and the downside of this is that any credit facility, whether or not it is being made use of, is regarded as a risk and automatically deducted from the total income calculation.
'For example, if you have three credit cards with a total upper limit of R100 000, the bank could deduct R100 000 from the estimate of your annual earning '“ even though you may owe almost nothing on the cards at the time of application and are prepared to guarantee that you will not spend heavily on them'
Clarke said that he and his Chairman, Bill Rawson, support the Credit Act in principle because in any Third World economy like that of South Africa, once growth begins to be achieved salary earners will be tempted to overspend on non-essential items '“ and this tendency has to be controlled.
