Another rate cut expected this week | How to manage home finance during Covid-19

The Reserve Bank is expected to make another rate cut later this week, much needed under the difficult economic circumstances South Africa finds itself in. However, there are actually some very achievable solutions for homeowners and prospective buyers trying to navigate home finance in the time of COVID-19, say the experts.

Responsible finance for prospective buyers

Prospective buyers may view the current situation as a great opportunity in the reduced prices of distressed properties and record low-interest rates. For those wary of taking on debt at present. 

A few careful steps can help prepare buyers to responsibly take advantage of what could be the investment of a lifetime.

Step one is to get prequalified. This gives you a clear idea of your buying power and should bring to light any issues with your credit record that need attention. From there, with the help of your bond originator, you can work on your financial behaviour to minimise expenses and maximise the appeal of your financial profile.

This not only gives buyers the best chance of favourable interest rates from lenders but also enables them to make informed decisions on their affordability.

Depending on your circumstances, you can choose to play it safe by applying for a bond below your maximum affordability with a sizeable deposit, or take advantage of the current lending climate to secure a loan of up to 105% of your purchase price. It’s not a one-size-fits-all situation, but your bond originator can help you find the right balance for your finances and lifestyle. There are great opportunities out there at the moment. Don’t let fear stop you from taking advantage in a responsible manner.

Insurance to cover your bond

Believe it or not, it is possible to buy a home during the lockdown restrictions. The Deeds Office is open and interest rates have fallen for the third time this year.’ There has not been a better time to buy a home.  

You might not be able to physically view a property, but if you fell in love with a home you visited before lockdown or you have found the right property online during the lockdown, we can do everything for you virtually, from facilitating an offer to purchase to see the transaction through to transfer.

Remember to factor in all the costs of purchasing a home.  The cost of insurance is something first-time homebuyers often forget to include in their calculations. Apart from insuring your bond and the contents of your home, you will need home owner’s insurance. This covers you in the event of lightning, fire, storm, hail and water damage to permanent parts of your property (i.e. everything you wouldn’t take with you when you leave one day).

When you take out a bond, your bank may request that you take out life insurance. This will ensure that your family won’t be left with the burden of paying off your bond or have to sell the property to cover it, should you pass away.

If you already have life insurance in place to cover, for example, your children’s education and living expenses, think carefully before deciding that you don’t need more cover when you buy a home. If you were to die without having increased your insurance, the life cover will be used to pay off your bond, leaving little for the costs you initially bought it for.

Remember, you don’t have to use the bank’s own product. You can also ask your own insurance advisor to suggest a product that suits you best. Recent events during the Covid-19 pandemic have shown how useful this can be if you find yourself unable to make repayments. 

Debt restructuring for existing homeowners

The most important thing for existing homeowners to know right now is that there is hope – they are not powerless in the face of their challenges.  

In fact, lenders are being extremely supportive of clients in financial difficulty due to the impact of COVID-19.

Many loan agreements also have built-in credit insurance which could help homeowners cover bond repayments until they’re back on their feet. For those without insurance, however, payment holidays and bond restructuring are both popular compromises offered by lenders.

Keep in mind, any delay to your repayments will increase the total amount of interest you pay over the lifetime of your loan. That’s a far better option than having your home repossessed, but it’s not something to be taken lightly. I’d urge homeowners to still prioritise their home loans, and pay as much as they can afford to, rather than taking undue advantage of debt restructuring and adding to their financial burden down the line.

Homeowners in genuine financial distress should approach their lenders as soon as possible.

It is a time to act decisively, take control of the situation and consult with people who can assist.

It is best to be upfront with the bank and tell them the situation, rather than defaulting on a payment without notification. If the situation is left to run its course, it will not only result in the homeowner losing their property; it will also lead to a tarnished credit record and blacklisting, which leaves the consumer unable to obtain any credit for the next five to 10 years. This means that even renting a property will become difficult because most landlords do credit checks on their potential tenants.

Use a professional debt counsellor

Some homeowners might be under the impression that the bank will repossess their property as soon as they communicate their distress. However, this is not the case. Banks want the homeowner to keep their property and will try to assist where possible, but the only way they can help is if they are aware of the situation.

If the situation has gotten to the point where the homeowner can no longer handle it by themselves, we advise that they make use of a professional debt counsellor who can provide guidance. A debt counsellor will be able to assist the homeowner in reviewing their finances and submitting a proposed repayment plan to the relevant creditors.

Homeowners that do not see a way out of their financial situation can opt to consult with a real estate company that specialises in the sale of distressed properties. Banks are working with agencies to sell distressed properties at market-related prices. If the homeowner would like to keep their credit record intact, the most effective method of doing so is selling the property and recovering from the financial crisis. In certain cases where the homeowner has built up enough equity, they may be able to cover not only their remaining bond but also some other debts as well. Essentially this option could provide the homeowner with an opportunity to start again with a clean slate. 

Don’t bury your head in the sand, fall behind on your mortgage payments and just hope all will be forgiven. Lenders are open to compromise, but they’re not going to overlook those who default without explanation.

When approaching your lender, bring documentation showing your income and expenses, and any special circumstances that may have contributed to your financial difficulties – like retrenchment – is vital.

You need to be able to explain why you can’t meet your obligations, and back that explanation up with real facts and figures. Nine times out of ten, if you can prove genuine financial distress, your lender will be willing to help you out.