Real Estate Investor Magazine South Africa May 2014 | Page 24

FINANCIAL

BY WESLEY BARNARD

Good or bad?

How the credit amnesty could impact the property market

T

his month saw credit amnesty come into effect,
which will essentially ensure that certain
negative financial information is removed
from consumer’s credit records at credit bureaus.
The aim of the amnesty is to reintroduce those
consumers who have previously been unable to apply
for credit due to negative listings, back into the market.
While this is welcome news for those consumers as
it provides them with the opportunity to once again
access credit, it could come at a much higher cost.
Previously banks would base much of their credit
rating models on a client’s payment history, which will
be far less detailed without the information provided
by credit bureaus.

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May 2014 SA Real Estate Investor

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Without access to this potential adverse information
on a consumer’s payment profile, it will be far harder
for financial institutions to determine their risk or the
applicants’ ability to repay their credit. As such they
will have to adjust their approach and methods of
distinguishing between high and low risk lenders.
This could result in the opposite effect that the
credit amnesty was initially introduced to achieve in
that if banks feel that they are acting within a higher risk
environment, they will be far more cautious in reviewing
applications, and will therefore be tightening up their
lending criteria and could in fact grant less credit.
Bank representatives have gone on record saying
that that the removal of the adverse credit records of
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