The effect of the National Credit Act, 2005 on home loans: a selected case in South Africa

Abstract

The National Credit Act, 2005 (NCA) was introduced by the South African government mainly to bring about accessi-bility to credit markets, protect consumers from malpractices and market abuses by credit providers and reduce con-sumer over-indebtedness. As a result, credit providers are compelled to apply stringent rules and regulations when assessing a credit consumer’s affordability prior to granting home loans. The purpose of this paper is two-fold, firstly, to ascertain whether the NCA has prevented reckless lending by home loan providers, and secondly, to determine if the introduction of the NCA has prevented or reduced over-indebtedness amongst the home owners. The study ap-plied a mixed methods approach using a sample of 250 respondents from the Pinetown Metropolitan area of KwaZu-lu-Natal, South Africa. The results of the research indicated that the performance of affordability and credit risk procedures by credit providers helped to ensure the prevention of reckless lending and also reduced over-indebtedness in the long-term.