Many homeowners are struggling to afford their bond repayments in the tough economic climate
It is no secret that most South Africans are under severe financial pressure. Many homeowners are giving up homes, or fighting to retain them for as long as they can, while struggling to make ends meet.
For many their home is their security so having it sold by the bank, or having to sell it themselves for financial reasons is heartbreaking. But this is the reality for many, and banks are stretching themselves to help struggling homeowners as much as possible. Despite this, more people are defaulting on their home loan repayments, says Mfundo Mabaso, growth head at FNB Home Loans.
“There are more clients in arrears in March 2019 than in March 2018. To counter this, we have increased the arrangement terms and are assisting customers, which has improved payment behaviour.”
But many homeowners at the lower end of the market – which is most impacted by economic changes such as the rising petrol price, rates increases and inflation – tend to default without informing the bank.
“When they are contacted they tend to be evasive.” However, a small percentage – about 1% – of this market does proactively approach the bank when in financial trouble, Mabaso says.
Customers in the “easy” and “gold” segments have been impacted by the overall increases in the cost of living in recent months. More homeowners are looking to sell their homes before defaulting, says Tania Smit, manager of escalations and assisted sales at Pam Golding Properties. “In bank assisted sales we are seeing a substantial increase in reverse leads and client enrolments from our side. There is definitely an increase in clients requiring assistance from the bank to sell their properties in time.”
While Absa Bank has not seen an increase in customer defaults, says Mbuyiselo Khumalo, head of Absa’s home loan collections and deceased and insolvent estates, it is witnessing “a number” of customers approaching it for assistance before defaulting.
“We also have pro-active measures to identify and assist customers who show signs of financial distress, this being irrespective of whether or not the customer has missed a payment.” Khumalo says there has also been a “marginal decrease” in the volume of home loan applications received, reflecting general market trends over the past year.
This is echoed by Mabaso: “We have seen about an 8% reduction in applications processed compared to the same time last year, and this can be attributed to pressures faced by customers in this economic climate.”
Despite the decline, both Absa and FNB are seeing an increase in approval rates applications received. The main reasons applications are declined are insufficient cash flow or affordability, and poor credit profiles. The Re/Max National Housing Report for the first quarter of this year cites Lightstone Property data which reveals a total of 39 836 bond registrations was recorded at the Deeds Office over this period, totaling R43.88 million. This translates to a 5.7% decrease in the number of bonds registered since the last quarter of 2018.
If in financial trouble, talk to your bank
Consumers struggling to repay their home loans – or any loans, for that matter – often believe they can get away with short-payments in the months they are struggling. But this is not the case, the banks say. “A client can short-pay their repayment only with the consent or agreement of the creditor, says FNB’s Mfundo Mabaso.
“FNB will offer options such as special arrangements allowing a client to short-pay, but only for a specified and limited period. This is to give them some time to either recover financially or decide whether or not they can still afford the property.
“If a client short-pays without consent/agreement, there is a credit bureau listing risk as well as legal action risk which could result in the loss of ownership of the property.”
Absa’s Mbuyiselo Khumalo agrees: “When a customer finds they are unable to pay the full instalment, they need to contact their home loan provider and inquire about arrangements that could be made. Each customer’s situation is unique so it is important for the customer to engage with their financial institution.”
Communication, the banks say, is key in any type of financial struggle. “It is always advisable for people to be honest about their financial situation,” Mabaso says.
“If the financial position of an individual changes so drastically that they are no longer in a position to meet their credit obligations in full, it is recommended they consider downscaling to a property that is more within the range of what they can pay. This might mean selling the current property. Selling early is advantageous to an individual because they might fetch a good price before they fall too far behind with their repayments.”
Absa Home Loans also offers a variety of assistance options to customers experiencing short-term financial distress. “We look to accommodate the customer with a lower instalment for a specific period of time.
“Should the distress be of a long term nature, we have a dedicated team to assist the customer in selling their properties and moving into a more affordable home,” Khumalo says.
Always ask for help
If a homeowner is battling to keep up with bond repayments and enrols with their bank’s assisted sales programme, the bank will stop the legal process for a period of 90 days, says Pam Golding Properties’ Tania Smit.
“The fact the bank will potentially provide substantial shortfall assistance and allow sellers to repay any remaining shortfalls interest free, allows the seller to also be more negotiable with asking price.
“No client should ever miss out on an opportunity to get out of their tight spot without the fantastic benefits offered by the banks, as it substantially improves their chances of recovering faster after a sale,” she says.
FNB’s Mfundo Mabaso says while the number of voluntary surrenders has been “relatively stable” for the past year there has been an increase in the number of compulsory insolvency applications as well as litigation by other third parties, such as body corporates, homeowners’ associations and municipalities, against defaulting bondholders.
Tips to create affordability
Aspiring homeowners who cannot afford to buy a home should delay the decision until they are better off financially, says FNB’s Mfundo Mabaso.
“Customers should also consider buying something more affordable and upgrade to the desired home when they are able to,” Mabaso says.
For those who want to buy, but know they will be stretched every month, Absa’s Mbuyiselo Khumalo advises:
◆Pay off your existing debt to create affordability. Focus on first paying the smallest debt. Regularly pay off your credit card and to improve your credit score you must pay your accounts on time.
◆Monitor your credit record every four months to ensure the record that is on your profile is accurate.
◆Start saving so you can afford the costs associated with purchasing a home.
Transfers, bonds 2018-2019
The number of transfers – both bonded and unbonded – recorded at the Deeds Office between January and March 2019 decreased by 7.7% from the fourth quarter This is according to the Re/Max National Housing Report for January to March 2019.
But Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, explains: “The first quarter of the year is normally slower than the rest of the year, so it is not unusual to see the number of transactions wane over this time.”
He adds, however, it is”encouraging” to see the first quarter of this year performing better than the first quarter of last year. January to March 2019 saw a steady 25% growth in the number of bonds registered compared to the same period in 2018.
“This means that the banks’ lending appetite has increased, which is a positive for buyers.” Furthermore, Goslett says the average bond amount granted during this period saw an increase of 4.4% to R1.1 million which also reflects an increased lending appetite by financial institutions.