South Africa’s debt and affordability levels continue to surge, but thanks to a prolonged buyer’s market with the lowest interest rates experienced in half a century, consumers have their sights firmly set on the residential property market.
100% bond approvals, lenient loan criteria and significantly reduced property prices are responsible for a recent influx of bond applications. In fact, the home loan industry is experiencing levels of activity not experienced in years - particularly amongst first-time buyers, says Rhys Dyer, CEO of ooba Home Loans.
“As of September 2020, first-time home buyers represent 55% of ooba’s application volumes - up from the mid to high 40%. Most applicants (67%) are seeking a 100% bond application,”
“In some cases, it’s actually more cost-effective to buy than to rent in the current climate” Dyer adds.
Got Bad Debt?
However, bad debts and poor credit records have some wondering if they can afford a home - even in the most favourable economy. According to ooba’s statistics, 8.4% of home loan applications are declined due to poor credit scores and 7.7% due to affordability.
Dyer says that understanding, correcting and where possible ‘perfecting’ one’s credit score is the best way to secure a home loan. “Many South Africans still don’t know their credit score, despite all the free and easily-accessible online tools out there,”
“It often isn’t until a home loan application is turned down that people realise that organisations are aware of their credit history, and that that history might be less than perfect”.
The approach of ‘get the debt now, deal with the repayments later’, has led to an ongoing battle between consumers and financial institutions, often resulting in bad debts and a poor credit score.
What Your Credit Score Says About You
A credit score rating of 600-plus is required to qualify for a bond. Rhys advises: “If you do not qualify, either because of a poor credit score, no credit score, or because you cannot afford the monthly repayments, you have a few options,”
“If your credit score is the issue, you need to build up a good credit history. If you have no credit score, try to small retail accounts or a cell phone account, and pay it back on time and in full, if not a bit extra, each month”.
For those with a poor credit score, try to settle the outstanding debt as quickly as possible. “Bolster your credit score by paying your bills on time, by not taking out any further debts and reducing spend where possible”.
If affordability is a challenge, Rhys suggests a prequalification to ensure that your affordability meets the bank’s criteria. “Knowing what you can afford will guide your decisions and save you a lot of wasted time in the long-run”.
Rhys says that consumers can check their credit score every three to six months using an online bond indicator such as ooba’s.
10 Tips for Improving Your Credit Score
- Avoid late payments: “Pay your debt on time, every time”.
- Never pay less: “Fulfil your minimum debt instalments each month and where possible, pay in more than the required amount. Failing to do so will damage your credit score”.
- No defaulting: “Missing a payment obligation can result in a judgement against you”.
- Too much debt is not a good thing. “Do not max out your credit facilities, this will impact on your score”.
- Avoid different credit cards: “Avoid having lots of different credit cards and person loans to maintain payments on. This sort of debt can certainly lower your score”.
- Avoid frequent applications: “Avoid applying for new credit card facilities or increasing existing credit limits on a regular basis. A high volume of credit checks is conducted by banks and retailers against your ID number and this can weaken your credit score”.
- Say no to surety: “If a friend or family asks you to sign surety on their debt agreements, say no. This can impair your credit record and score should they default on payments”.
- Downscale your lifestyle: “Rather than living off your credit card and falling into debts to maintain your current lifestyle, rather change your lifestyle to accommodate your financial situation. It’s impossible to maintain debts if you’re eating into money that you cannot repay”.
- Some debt is good: “Having healthy debt is a good thing. Not having a credit repayment history will impair your credit score”.
- Be careful of debt reviews: “Do not apply for debt review or insolvency unless there is no other alternative. The effects of this will heavily impact on your credit score”.
Clearing Your Credit Report
Rhys says that adverse classifications will be removed after one year, provided that the debt is settled in full. “On the other hand, judgements against your name takes five years, once again provided that the debt is paid in full or if the court rescinds the judgment. Sequestration orders also take five years while a rehabilitation order will continue to reflect for a further five years. Finally, administration orders also take five years, or up until the point where it’s rescinded by a court”.
He concludes saying: “Owning a home can be rewarding. Bolster your credit score and chat to experts who can guide you on your journey.”
PERSONAL FINANCE