Amnesty could be a Catch-22 for homebuyers
There are at least two ways of looking at the credit amnesty that has just been approved by Cabinet, says Berry Everitt, MD of Chas Everitt.
“The amnesty provides for a once-off removal of all adverse information from consumers’ credit bureaux records, irrespective of value and even if the debt has not been paid, effectively giving everyone a ‘clean slate’.”
In addition, it provides for future paid-up debts and judgments to be removed from consumer credit records on an ongoing basis.
“And from the point of view of those consumers who have found themselves unable to obtain new credit because they are ‘blacklisted’ or have old ‘black marks’ on their credit records, this must obviously sound like a really great idea. It must be especially appealing to those who are keen to buy their first home, but have been refused a homeloan because relatively minor credit transgressions, many of them long since rectified, are still reflected in their credit histories,” he says.
Indeed, although no start date for the amnesty has been announced yet, the objective, according to a Cabinet statement, is to “…address the issue of access to credit by consumers who may have paid their debts in full, and are in a position to afford credit, but whose access is currently impeded by negative credit information on their record”.
However, says Everitt, consumers do need to be aware that the banks and other credit providers have an entirely different view and have vigorously resisted the amnesty. Apart from worries about consumers seeing the amnesty as a debt pardon, they say it will make it much more difficult for them to assess risk when considering new credit applications.
“And because they will have no way of knowing who has been good at managing credit in the past, and who has not, they say, they may even have to raise the price of credit to cover their additional risk.”
This would, of course, make it more difficult to qualify for homeloans, and shut many potential buyers out of the market again, irrespective of the credit amnesty, because they don’t have sufficient disposable income, he says.
“In other words, the amnesty could well end up as a Catch-22 situation, with only one way out for prospective homebuyers: Pay down debts in order to increase disposable income and then save up a substantial deposit before applying for a homeloan.”
