Flawed credit profiles

Flawed credit profiles, says Rob Lawrence, national manager of the bond origination company, Rawson Finance, are still the number one reason for bond applicants being turned away by the banks.

“Despite massive media coverage on this subject, at Rawson Finance we are still regularly approached by applicants whose credit records, when consulted, have both orange and red profiles (orange indicates that a debt has been or was outstanding for more than one month and red for over two months).

“You can be absolutely certain that if there is red on the credit record the bank will either turn down the application or make a lower offer,” says Lawrence.

The situation, he adds, will become worse now because a recent High Court ruling makes it illegal to collect more than double the original amount borrowed, no matter how long the debt has been unpaid and how high the interest amounts have risen.

This ruling, known by the legal term “in duplum”, says Lawrence, will cause the banks to be even more cautious when it comes to lending on bonds, because they will now have greater difficulties collecting debt. In addition, the ruling that, in some cases, banks must look to attaching and selling movables first is also making debt collection on bonds more difficult. Already, he said, his division of Rawsons is seeing a tightening in bond approvals as a result of the ruling.

In the circumstances, says Lawrence, bond applicants must make doubly sure that their credit records are “squeaky clean”.

“It has to be appreciated,” he says, “that just paying off debts is not enough: the applicant’s credit record must also show that he has been up to date on all his accounts for at least six months, possibly longer.”

Many applicants, said Lawrence, are caught out by the efficiency of the national accounts checking systems. In some cases they have even totally forgotten about past misdemeanours.

His advice to applicants, therefore, is to go to www.mytransunion.co.za. Here, if they log in their names and ID number they can check their national credit standing for themselves. The system allows one free perusal per annum. Thereafter the applicant will have to pay for it.

Lawrence said that prior to the property boom of 2003 to 2007, South African household debt had comprised 52% of total incomes. By the time the “crunch” came in 2009 it has risen to over 95% - and even today, he said, it still stands at 72%.

“This is plainly too high for an emerging economy,” he said. “We have to avoid the USA situation where even after a two year credit squeeze their total household debt was almost equal to their total income.”

In applying for a bond today, said Lawrence, applicants should take the advice of Rawson chairman, Bill Rawson, and consult early on with a “clued up” bond originator like Rawson Finance. After a discussion with such an organisation they may possibly have to scale down their housing ambitions, settling for a less affluent home initially and then using this to scale up later.

Article by: www.rawsonfinance.co.za