Why consumers are battling to get bonds

2014-10-30 06:00
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Cape Town - The declining affordability position of consumers to land a bond to buy a home is the result of soaring living costs, according to an industry expert.

Rhys Dyer, CEO of Ooba, told Fin24 in an interview that banks are not necessarily tightening their lending strings.

"Banks are not necessarily getting any stricter; I think the consumer is just under more pressure."

He said banks haven't really changed anything, adding that they are probably looking for more business since home loans is quite a profitable part of their business.

Dyer pointed out that the problem is that consumers are failing to meet affordability assessment thresholds. He explained that an affordability assessment is a process to determine whether consumers can service their loan repayments.

"So if you make R100 and you've got R90 of expenses, the R10 that is left over, that must be the amount that you can use to pay off your bond.

"So effectively what we are saying is that, that R10 in my example, seems to be getting smaller and smaller for most consumers and the reason for that is that costs generally ... are going up quicker than peoples' salaries are going up."

The other big challenge, said Dyer, is customers who have credit problems. "A bank will not grant you a home loan if there is a history of poor credit".

He said about 45% of active credit consumers have an impaired credit record and this results in bond applications being declined.

Watch the full interview:

Dyer also advised consumers to shop around when looking for a bond, especially because each bank looks very differently at credit and pricing.

Do you want to know more about bond originators? Watch the full video interview:

 - Fin24

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