n SA Mercantile Law Journal = SA Tydskrif vir Handelsreg - Protection for homeowners against various interest rate hikes




Various interest rate hikes from 2006 to 2008 have had a negative financial effect, particularly on low-income homeowners. These and the worldwide financial crisis have led to an increase in levels of consumer debt, and many consumers have since lost their mortgaged homes, while others are still fighting to keep them. Although the National Credit Act ('the Act') was implemented in June 2006 to protect consumers, it did little to curb the detrimental effect of the rising interest rates. Under the Act, a credit provider may conclude a credit agreement with a consumer only after he has made a proper financial assessment and concluded that the consumer will be able to satisfy all his obligations under all his credit agreements. This affordability assessment will depend on the prevailing interest rates at the time. Therefore, the determination of loans allowed to be made to a consumer is based on financial data available when that determination is made. However, there has been a failure to consider what happens if the interest rate increases significantly after the agreement is concluded, causing the consumer no longer to be able to meet his obligations under his credit agreement. The increase in interest rates may also cause the consumer to become over-indebted, and he may even end up losing his mortgaged home. If the consumer is in the middle- or high-income group, he can cut down on his living costs, sell his home and buy a cheaper home in a different (poorer) area; and still be able to afford to buy or own a home. But the low-income consumer who just managed to meet the instalments on his housing loan cannot lower his living standard any further and will possibly never be able to buy or own his own home again. He has neither negligently nor intentionally caused this situation, which seems to be unfair.


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