Banks will soon have to explain themselves if they refuse you a home loan - and banks which discriminate against you unfairly will be liable for a R100 000 fine.
Draft legislation tabled in Parliament will force banks to provide detailed information on home loans which are granted and those which are refused.
The legislation, known as the Home Loan and Mortgage Disclosure Bill, aims to end to discrimination on the grounds of race, gender, marital status, age, disability or any other any criteria described by the Constitution.
'Red-lining' outlawed
If enacted, the legislation will outlaw the long-standing practice of banks of "red-lining" some residential areas - ostensibly on the grounds of risk - which has often made it difficult for people such as township residents to access loans.
Parliament's Portfolio Committee on Housing was briefed on the Bill this week.
Richard Thatcher, a senior legal advisory officer for the Department of Housing, says as far back as 1994 the department realised that banks were refusing home loans for reasons other than economic risk.
For instance, clients in townships who would normally have qualified for loans because they had full-time jobs and long-standing savings or investment accounts with a bank had had their loan applications rejected.
"It is easy to get information from banks on the number of home loans granted every year. But what the department wants to know is how many loan applications are refused, and banks have been unable to provide this information," Thatcher says.
"We are trying to send a strong message to the banks that they must disclose information about all home loan applications."
Mechanisms such as the Mortgage Indemnity Fund were put in place by the government in 1994 to encourage banks to lend to potential homeowners. But since the winding up of the fund in June 1998 there has been little effort by the government to force banks to lend to all consumers fairly.
The Bill will apply not only to banks but to any financial institution which is in the business of providing finance for home loans.
It will require financial institutions to provide detailed information about loans granted, the number and type of loan applications, the category of borrowers, and geographical areas. The institutions will also have to spell out reasons for refusing to grant a loan.
Auditors to check up
As an additional measure to prevent banks from hiding information, auditors looking over a bank's financial statements will have to comment specifically on the accuracy and the completeness of home loan information and whether the financial institution has met its obligations under the legislation.
The information will be sent to a new Office of Disclosure, which will analyse the data, identify discriminatory lending practices and make recommendations to the Minister of Housing.
If you feel a financial institution acted unfairly in rejecting your application for a home loan, you will be able to complain to the Office of Disclosure.
Institutions which refuse you a loan for the wrong reasons can be found guilty of an offence and fined up to R100 000.
The Banking Council has welcomed the Bill.
"We are of the view that if there is discrimination we need to identify it and act against it," Cas Coovadia, general manager in charge of transformation at the council, says.
But the council is concerned that the powers of the Office of Disclosure are too wide. For instance, members of the office will be able to walk into a bank's branch and demand information.
"We feel this would be disruptive to our operations and that there are better ways to handle it," Coovadia says.
Tips for home buyers
* Before applying for a loan make sure you can afford your own home by working out a budget of all your income and expenses. Banks will generally not allow you to spend more than 25 to 30 percent of your income on monthly repayments;
* When you start looking for a home, it is a good idea to get a certificate from your bank stating how much the bank will allow you to borrow. This will help you be realistic and will be to your advantage when negotiating with a seller;
* You can approach a bank directly or through your estate agent;
* Remember that interest rates on home loans vary between clients. All the major banks offer the same base rate, currently 14.5 percent, but your bank may quote you a rate up to two percentage points lower or higher than the base rate;
* Try to negotiate the best deal you can. Remember that even a small difference in the interest rate you pay makes a big difference to the total you pay; and
* A good way of shopping around for the best rates on a loan, is to use the services of a mortgage broker. Two big internet brokers are MortgageSA.com (www.mortgagesa.com) and BondNet (www.bondnet.co.za). These brokers will look for the best deal for you.