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In an attempt to better understand the reasons why South Africa’s banks across the board reject a fairly highly proportion of the mortgage bond applications that are submitted to them, the Rawson Property Group commissioned former ABSA bank Regional Manager Mike van Alphen to go through a large sample of Rawson Finance’s July bond applications and analyse the ostensible reasons for their failure.
Van Alphen, now with Rawson Financial Services, reported back to Bill Rawson, the Chairman of the Rawson Property Group, and Tony Clarke, the Managing Director, that the chief reasons for the "declines" had been:
1. Bad credit records
"This cause," said van Alphen, "accounted for 32 percent of the rand value of the rejected files. What is more; the banks, it has been shown, are fairly consistent in their assessments. In more than 90 percent of the cases at least three (sometimes more) of the banks took the same stance on the rejected applications, always giving the same reasons, i.e. unfavourable credit records."
Checking in certain cases with the credit bureau; the investigation found that these failed applicants usually had two or three court judgments against them and some had unpaid debts written off by the banks.
"Bad credit records, therefore, emerged as the prime reason for bank rejections," said van Alphen, "and this should be borne in mind by any bond mortgage applicants."
2. Unsatisfactory credit score cards
Every loan application is fully screened by the bank and points are allocated based on the criteria in bank’s "Credit Score Card System". If an applicant does not reach a certain minimum level of points, the application will be declined.
18 percent of the rejected applicants were due to the client not reaching the minimum credit score. Such clients, said van Alphen, could probably not afford the bond. Alternatively their conduct on existing bank accounts had been unreliable (they had often responded negatively to bank requests for details).
In addition, the banks took a hard look at the applicant’s employment record: excessive job swapping and long periods out of work also counted against acceptance.
Article continues on pages two and three: five more reasons why banks reject home loan applications...