John Vaughan (Financial Advisor) @ Lucid Living
According to property financing company ooba, latest statistics from the Credit Bureau Monitor’s 2010 fourth-quarter report show that only 53.3% of SA’s credit active consumers are classified as “in good standing”.
This is alarming, given that banks are adopting a conservative approach to lending and are scrutinising credit reports as a preliminary step before even considering any home loan applications.
The result is that credit reports are playing a more critical role in influencing the home loan decline rate, said Carol Reynolds, Pam Golding Properties’ area principal in Durban North and La Lucia.
“Essentially, the two key factors that will impact on a home loan application are affordability and credit report. If an applicant does not have a clear credit report, this will adversely impact his/her chances of obtaining home loan finance. It is therefore prudent for purchasers to clean up their credit report before embarking upon house-hunting,” she said.
According to Kate Thambiran, CEO of Lucid Living “the best way of upholding a favourable credit rating is to ensure all accounts have been paid timeously, and that any judgments have been rescinded and cleared off one’s credit report.”
Thambiran adds that a blacklisting can remain on a credit report for up to two years, so the sooner accounts have been settled the better. It is also important to follow up with the relevant credit providers to check that records have been cleared post-settlement and updated with the credit bureaus.
“Against this backdrop of conservative home loan lending and deterioration in consumer credit reports, it is not surprising that the residential property market has been slow to show any marked signs of recovery,” according to Reynolds.
“On the whole, we are noticing more activity in the affordable price brackets. However, this activity is being negatively impacted by poor credit reports. Essentially, buyers may often be willing, but not necessarily able to obtain the requisite home loan finance to pursue any transactions,” said Reynolds.
As a result she recommends that prospective purchasers try to ensure they are deemed “A-grade” purchasers by virtue of the following three imperatives: a clear credit report; the ability to buy without having to sell first; and finally, a pre-qualification from a bank or mortgage originator.
“If buyers arm themselves with these three tools, they will be able to negotiate better prices on potential properties because sellers will be satisfied that they mean business.”
It is a simple case of both banks and sellers assessing the risk in the potential deal – the less risky the transaction, the greater the chance of it being accepted by the seller and the home loan financed by the bank.