Effect of National Credit Act on the South African property market

Dylan Burke - IPS

8 March 2008

June of 2007 was a month that significantly affected the South African property market. The inception of the new National credit act would be a catalytic act that would affect the market both positively and negatively.

Many would say that the dampening of the growth in house prices was a result of the new National Credit Acts implementation, with growth being slowed down to single digit figures as opposed to the double digit growth that the country has been experiencing for the past few years.

The fundamental focus of the National Credit Act is to set in place stringent credit profiling procedures; these fully assessing the overall credit exposure of all lenders before they broaden themselves into situations where they cannot cope financially. The new act stipulates that the onus is put on the borrower not the client, it is therefore imperative that the lender follows all stringent checks to assure that the client is able to borrow the necessary amount needed, failing this the lender will face penalties and legal action if the client defaults.

The most notable changes are the slow down in the granting of mortgages, usually it was a fast turnover with the banks to see if the application was successful, now the potential property purchaser can wait up to 60 days to see if it is approved or not.

Another change to emerge is that of the amplified popularity of the 30 year mortgage, this helping to extend the purchasers payment schedule, and to help manage his credit more effectively.

The tendency is now for an applicant to pay a deposit as opposed to applying for a 100% mortgage; this directly improves their prospects for qualifying for the mortgage they desire. This is not seen as a hard and fast rule however banks are still issuing 100% loans.

There has been a notable decrease in mortgage approvals since the inception of the National Credit Act, saying that though the banks have foreseen a median growth of between 5% and 10% in house prices for 2008.

So in summation one could say that the National Credit Act has applied the brake to the property market in South Africa, but in actuality the act helps manage financial situations better, helping them to purchase when able and capable to do so, in the larger scales of things, a big brother watching over us.

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