Affordability still the key to getting finance, says Betterbond

South Africa’s financial institutions have taken the brunt of the blame for not approving more mortgage finance, which many believe would go a long way to further stimulating trade within the property market. However, with South Africa’s debt-to-income ratios still at a very high level, affordability remains a primary consideration that is weighed up before finance is granted.

“The banks' first criterion in the evaluation of an applicant remains affordability and the risk of the applicant when it comes to the repayment of a long term loan,” says Rudi Botha, CEO of Betterbond, South Africa’s largest mortgage originator, who notes: “The ruling that a maximum of 30% of the gross salary may be used for the monthly repayment of the home loan instalment was around even prior to the inception of the National Credit Act (NCA), and it is still applicable today.”

In addition to this, but equally important, is disposable income, that is the amount remaining after the deduction of all monthly expenses from the gross salary. This, amount needs to be more than the estimated monthly repayment of the home loan being applied for.

Credit bureau ratings are also taken into consideration as they provide a history of the individual’s repayment capabilities and highlight any potential areas of risk that may exist, which would in turn affect the risk rating of the applicant.

Botha emphasises that a good credit record is one of the most vital factors in ensuring a successful home loan application. "The banks rely on historic repayment information from up to two years ago, and any late or non-payment of monthly accounts over that period may make the repayment ability of the applicant questionable."

He also points out that the banks all have different risk appetites and drives for market share as well as variations on requirements for different types of applicants. “Banks don’t share further information on their scorecards as this is compiled out of numerous characteristics and calculations which are adjusted from time to time as their requirements and strategies change.”

In order to ensure a higher likelihood of approval for mortgage finance, Botha’s final words of advice for consumers are to be careful not to take on too much debt, to ensure they live within their means and to make payments to retailers and other financial institutions preferably prior to the due date required.

Article: Betterbond