South Africans are enduring the effects of a sustained period of rising costs and increased debt payments which in turn have put them under severe financial pressure, for many homeowners, this pressure has seen them being unable to keep up with their monthly home loan repayments. According to credit bureau TransUnion, as many as 7.2% of homeowners are three months or more in arrears on their home loan repayments, with this number having increased by 20% year on year during the first quarter of this year.
Aside from rising costs such as fuel and food, the real squeeze has come from the 67% increase in interest rates, from 7% in October 2021 to the current 11.5%. While interest rates fell sharply during the COVID-19 pandemic to an artificial and historic low post-lockdown, they have risen steadily since then to the recent high of 11.75% which had been in place for more than a year now.
The impact is significant. For a homeowner with an R1 million home loan, the monthly repayments have increased from approximately R7,753 to R10,837 per month, an increase of over R3,000 in after-tax money. For an R2 million home loan, the monthly increase in payments is R6,100. For the most part, salary increases have not kept pace with these increases in repayments and homeowners are feeling the pressure.
Even though the outlook is more positive as fuel prices have decreased over the last few months, food inflation is slowing, and interest rates are expected to come down further, the financial ground gained may not be enough for many homeowners to catch up with the arrears.
“It’s not just entry-level homeowners that are struggling to balance the increased cost of debt in the current environment,” said Herschel Jawitz, CEO of Jawitz Properties. “We’ve increasingly listed homes to be sold by distressed sellers in more affluent areas which have typically been immune to this kind of re-payment shock.”
Despite the difficult situation homeowners may find themselves in, all is not lost, Jawitz said, adding that there are ways to find positive outcomes from a financially stressed situation.
“After the financial crisis of 2007 in which many homeowners lost their homes due to financial difficulties, which led to property forfeitures, some South African banks developed innovative programs to support their clients in navigating out of an arrears situation,” he pointed out. “The best outcome is always to find ways to allow the homeowner to catch up on repayments to ensure that they keep their home.”
Jawitz encourages financially stressed homeowners to engage with their bank to explore the options available to them, which could also include them voluntarily agreeing to sell their property conventionally, through an estate agent, before a legal process begins.
These programs are designed to help the homeowner should the proceeds of the sale not cover the outstanding amount on their home loan. In such an event, and as part of their support for their clients, banks may agree to repayment terms based on the owner’s affordability and may even forgive part of the shortfall owed. This sales solution avoids the financial and emotional trauma of a home being repossessed and allows the owner to sell the property, reduce their financial stress, and move forward.
“Homeowners who are experiencing financial stress should do everything they possibly can to control their costs and manage their debt commitments so that they can avoid having to sell their properties in the current market,” Jawitz said. “Property prices in most parts of the country are under pressure, which means it’s not a great time to sell if you are under pressure to sell in a short period.”
“If you are in arrears, contact your bank about its home loan solutions or ask your estate agent if they can help you to access your bank’s distressed sales program,” he advises. “Actively choosing to draw on the support options available to you will give you the chance to reduce your financial stress and re-enter the property market when your financial situation improves.”
PERSONAL FINANCE