Home Loan Affordability Assessment

Some credit providers are required by the National Credit Act 34 of 2005 (NCA) to conduct an affordability assessment when an application for credit is lodged.

An imminent risk that is coupled with the failure to comply with this requirement is that the debt may be declared as reckless lending, resulting in the discharge of the debtor’s obligations under that credit agreement. It is therefore important that credit providers conduct the assessment with care and diligence.

The main purpose of the assessment is to make a determination on whether the consumer is credit worthy, with regard to that credit facility. Therefore, among other factors the assessment takes into consideration the income of the consumer in relation to the monthly essential living expenses. If upon the available information it is evident that the consumer will not be able to repay the loan, and yet the credit provider grants the loan, this is also a rife situation for the debt to be declared as reckless lending as per sections 80 and 81 of the NCA.

Monthly Expenses - Wants vs Needs

As part of the assessment, the consumer is requested to declare not only their income per month, but also their monthly living expenses. Included in the latter may be expenses that may be seen as ‘wants’ and others as ‘needs.’ The total sum of what is declared as expenses in the loan application will have a huge bearing on the outcome of the application, the terms of the loan, the percentage interest and the necessity of a deposit.

Applying for a loan requires that the consumer, sometimes, reconsider their monthly budget and make necessary adjustments to accommodate the new debt instalments. The distinction between ‘wants’ and ‘needs’ then becomes critical. ‘Wants’ can be described as those expenses that are spent on things or activities that are good to have, but which one can do without under challenging circumstances.

These are such as going to the cinema, eating at restaurants, costs of entry tickets to sports matches etc. ‘Needs’ are those expenses that hold a higher degree of importance for human survival purposes, such as medical costs, food, accommodation etc.

Phoenix Bonds - Bond Originators Johannesburg

When approaching a credit provider to request a loan, it will not work in one’s favour to present financial circumstances that indicate very high living expenses, as it casts aspersions on debt repayment prospects. It does not assist either, to misrepresent one’s actual financial status because the consumer may likely be asked to prove such fact and upon failure, it may affect the outcome of the loan application. We encourage credit consumers to be as truthful and honest as possible when completing credit applications.

At Phoenix Bonds, our bond originators assist with the application of mortgage bonds as well as bridging finance. We take pride in seeing our clients smile throughout the process of bond application as our involvement as bond originators makes it easier and convenient.

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