Shopping for a home loan will not affect your credit record

KATE WRITES: I went to Standard Bank to go through the pre-approval process for my first bond. I told the client relationship manager at the branch that we would like to “shop around” for our bond. She warned me that if we made too many enquiries or applied for bond approval at too many banks, our credit rating would be lowered.

I called the call centre and was told that this was the case. I was told that, if we tried to leverage one bond application at one bank to get a lower interest rate at another bank “too many times”, we could see our credit rating scores fall. However, we have been advised by agents and other bank relationship managers that we absolutely should shop around for the lowest interest rates. The only way we can know what a bank can offer us is if we apply for approval. What is the truth? Are we being misled?

CITY PRESS REPLIES: When we approached Standard Bank with the complaint, they confirmed that shopping around for a quote would not affect the customer’s credit score and that the customer had in fact been given the incorrect information.

The bank said: “Standard Bank home loans utilises a multitude of factors to assess a customer’s risk, however, none of them is based on the number of ‘applications in progress’ or similar variable.

“From a Standard Bank home loans perspective, this would not influence a customer’s risk determination and, therefore, interest rate.

“This is a very unfortunate experience as Standard Bank adopts a multichannel strategy for new home loans and will service the customer through whichever channel is most convenient for them.

“One of Standard Bank home loans’ largest channels is the mortgage originator, whereby a consumer can apply to multiple financers at once.

“Their value proposition is to offer the customer comparative quotes and applications are submitted to a minimum of two banks, depending on the customer’s request, and we do not discourage this in any way. When acquiring an asset like a home, it is important to shop around and secure the most appropriate offer available.

“Standard Bank competes vigorously to ensure that our customers benefit from this based on the outcome of their risk profile. The incorrect information given by the consultants is being addressed and we apologise for the misunderstanding.”

City Press also approached TransUnion credit bureau, which confirmed that, while “enquiries play a role in determining the score, with all of the other information considered, the impact of enquiries to the overall score is generally small”.

They confirmed that, when calculating a consumer’s credit score, enquiries related to secured and unsecured credit products had differing impacts.

For example, enquiries for a home loan would have a marginal impact on one’s credit score, whereas multiple enquiries for personal loans would have a more significant impact.

As a consumer, it is important to know your rights because financial institutions could provide misinformation to induce you not to shop around.

Another common tactic is for insurance companies to tell customers not to shop around for competitive quotes because these queries will reflect poorly on a consumer’s credit record. This statement is also untrue – credit bureaus consider insurance queries to be “soft enquires”.

Can foreigners open investment accounts in SA?

Denzel writes: I live in Zimbabwe and I would like to know more about investing in South Africa. Is it possible for me to invest in the stock market or unit trusts?

City Press replies: Firstly, any investment outside of your country would need to meet that country’s exchange control rules.

In terms of how to invest through South African companies, it depends on the institution.

Some, but not all, financial institutions accept nonresident accounts.

For example, you can open an account with stockbroker Sanlam iTrade, but you cannot open an account with stockbroker EasyEquities or an investment with SatrixNow, so you would have to find out from the financial provider you are interested in investing with whether they offer nonresident accounts.

What you will definitely need is a South African bank account – this will be required by any investment company.

FNB offers a nonresident bank account. The requirement for the opening of the nonresident account is that the individual must be 18 or older and should not reside in the Common Monetary Areas – Lesotho, eSwatini (formerly Swaziland) and Namibia.

In addition, the following documents would be required for opening an account:

  • Recent certified payslip or proof of income;
  • Certified copy of passport;
  • Three months’ latest bank statements from your bank abroad; and,
  • Proof of physical address abroad, not older than three months.

Nonresident accounts can be opened via the nonresident centre (a virtual branch if the client is not in South Africa). The account allows the client the ability to transact locally – that is, receive and make payments in South Africa using online banking or the bank card at merchant pay points.

All international transactions need to be authorised via finance messaging network Swift for approval from the foreign exchange desk. Once the account is opened, it is assigned to the nonresident virtual branch, which becomes the branch that services the client and completes on-boarding and account maintenance.

Should I use my promotion to  pay off debt?

Marge writes: I have just received a promotion at work and will receive a R5 000 salary increase. I have done my budget and, with a bit of discipline, I will now have an extra R8 000 a month. Should I use this to pay off my short-term loan of R48 000 or start an investment?

City Press replies: Considering that the interest rate on the loan is about 20%, it would make sense to try to pay that off as quickly as possible, as no investment would give a similar return. However, if you do not have any emergency fund, you should start by creating one. Emergencies sabotage most debt repayment plans – if we don’t have savings, we usually end up taking on more credit.

To kick-start your emergency fund, you could consider putting the full R8 000 into a money market or 32-day notice account in the first month. You will immediately feel more secure knowing you have put that cash aside.

From the following month, you could add R2 000 a month to the emergency fund and use the other R6 000 to accelerate the repayment of the debt. Within seven months, you would have settled the loan and have an emergency fund of R20 000. The discipline will now be to leave that money for emergencies only!

Once you’ve done all this, you would be in a position to start putting together a holistic financial plan. You could work with a financial planner to look at your needs and goals. The key here is that you commit this R8 000 to obtaining financial stability and freedom, and not to increasing your lifestyle spending.

The GEPF does not determine your divorce agreement

Josef writes: Both my wife and I are members of the Government Employees’ Pension Fund (GEPF) and I want to understand what happens if we get divorced. Does she automatically get 50% of my pension? Please enlighten me.

City Press replies: It is very important to understand that the GEPF does not determine your divorce agreement – it can only implement a court-ordered settlement. In the case of a divorce, you and your wife would come to an agreement on how to split your assets.

This would, in part, be determined by the value of the assets you each have and whether maintenance towards children needed to be paid, and so on. In many cases, the only assets individuals have are their pension funds, which is why they are usually split, but you may have other assets that would form part of the settlement.

This would be agreed on, usually with a lawyer, and the agreement would need to be approved in court. Once the GEPF has the court order, it would apply any pension settlement on that basis.

Where should we invest for our retirement?

Chips writes: We are a 72-year-old retired couple. We have just sold our home and will have R3 million available to invest. We need to invest to allow for a monthly income, and will put away a portion to cover inflation. We have no outstanding debts and no rates or levies to pay.

City Press replies: You should get advice from a certified financial planner as this is a critical decision. You need to undertake a proper cash flow analysis. However, here are a few options to discuss with your adviser:

A joint guaranteed life annuity: This would guarantee both you and your partner an income for life. You should only select an option that increases with inflation; as a pensioner, inflation is your biggest risk. The benefit is that the income is guaranteed for life – the disadvantage is that, when you both pass away, there is no more income or lump sum to leave as an inheritance.

The annuity will continue to pay for the first five years, even if both of you pass away during that time. Given your age, you should get a relatively good rate on a guaranteed annuity, so it is worth getting a few quotes. Keep in mind that any income is taxable based on your tax rate; at the age of 75, the rate decreases.

Investment portfolio: You could invest the money in a market-related investment with a good spread of assets. You would aim for a maximum withdrawal of 5% of the capital each year to ensure there is enough left for growth to keep up with inflation and that you do not run out of money. On R3 million, that would be about R150 000 a year.

Depending on the underlying investments, this could be managed for tax efficiency. The most important factor here is costs, as this has a material impact on your income. Every one percentage point you pay away in costs is one percentage point less income.

Ask about all costs and make sure the total costs are at least below 2% a year – if not closer to 1%.

An alternative is to consider a hybrid option where you invest a portion into a guaranteed annuity to provide a basic income and put the rest into an investment.

This will all depend on what other income you currently have and whether that income is guaranteed.

Compiled by Maya Fisher-French



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