Banks willing to help as debts rise

Mortgage advances are at their lowest in years, but banks will help as home ownership is hit by the slowing economy.

The South African Reserve Bank today released stats on the growth in mortgage advances by monetary institutions, which has dropped to its lowest level in 3 ½ years.

With a growth rate of 20,6% year on year recorded in May 2008, it is the lowest since October 2004 when it was 21,4%.

"This is to be expected with the slowing down of the market," says Richard Gahagan, MD of Property24. "It's borne out by data from our Property Sold Price Index which shows that the number of sales has dropped substantially since this time last year."

Gahagan said total property transfers for Gauteng, Western Cape and KwaZulu Natal were down from 61,573 in Q1 2007 to 49,156 in Q1 2008. "The slowdown seems to be spread equally across freehold and sectional title ownership," he said, "with both ownership types down around 6000 transfers year on year."

And it's not only the growth in new mortgages that's the problem, says Gahagan. "Financial institutions are experiencing a huge number of defaulters at present, to the extent that they are starting to take drastic measures," he says. "But the lenders are in a quandary – by the time a homeowner defaults on his bond repayments he has usually already defaulted on other, smaller debts, so it means he is really in trouble. The only legal avenue open to the lender is to repossess the property, but most don't want to take this route."

Gahagan believes the financial institutions are reluctant to repossess large numbers of properties, as they are aware they won't recoup their losses in the current market. "They are also not in the business of letting property," he says, "so it means repossessed properties may either stand empty and risk vandalisation or be auctioned off for less than their value. None of these is the ideal situation."

But in a time when motorists are resorting to thuggery to steal petrol at the filling stations, Gahagan says struggling homeowners often feel there aren't too many options open to them. However, he says the banks are urging debtors to approach them early to discuss their difficulties in order to try and find a solution that will help the borrower.

"The institutions have indicated that they are willing to consider a wide variety of 'debt repair' options in an effort to avoid repossessing homes and other items," says Gahagan. He urges homeowners to do whatever they can to hold onto their homes and ride out the bad stretch, rather than throwing away the funds they have put into their properties to date.

Readers' Comments
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I find the title of this article misleading. It suggests that information will be given on steps banks are willing to take to assist borrowers.

Banks are also not really equipped to assist until it is too late and the damage is done. I am one of those people who are starting to take strain with rising interest rates, so I thought I would call the bank and ask what options are open to me. The Standard Bank call centre agent seemed perplexed when I asked her what options are open to me if I feel I can no longer afford my bond repayments. When I asked if there are ways of restructuring my bond account she only said that I could opt to fix the interest rate for 12, 18 or 24 months (each option with an approx 0,5% premium on the existing rate). This would be a gamble as the bank obviously speculates about future interest rate movements as much as I do.

Nevertheless, I decided to opt for one of the fixed rate options and held for about 10 minutes as this was loaded on the system. A week later (after the next rate increase) I received an sms indicating that my bond repayment would be adjusted as the interest rate had gone up by half a percentage point. So after all the effort, my request had never been loaded and I still have a variable linked rate. This was merely to point out one of the little inefficiencies, the point still remains that the banks are not equipped to assist one until you start defaulting – and even then, they may just give you a couple of months' breathing room before expecting you to recommence paying and then also catching up on the arrears interest and capital that you fell behind on.

Bottom line: The Reserve Bank puts the squeeze on the banks and the banks put the squeeze on us (why won't they ever reduce the margin between the repo rate and their prime lending rates?). They run the risk of losing a bit when selling a repossessed house on auction but we run the risk of losing any equity we may have built up in our property as well as being blacklisted and not being able to buy another house, car, or open any accounts, or even obtaining a Telkom line or cellphone contract. Seems one is totally screwed whatever way you look at it. - Thomas Franken

Banks want to help? What rubbish! FNB refuse to return calls. I even spoke to the legal department in Johannesburg who were as thick as bricks. My daughter fell behind by three months on a house she was letting out in KwaZulu-Natal. FNB kept on calling her for the money - even when she told them the house was up for sale. This Monday a deal was signed with an FNB client. My daughter then faxed the documents to FNB, then followed up with a phone call, only to be told "that does not mean anything to us you must pay".

That is when I called the legal department at FNB - STILL WAITING - Neville Mayes

Sorry, but pretty useless article based on the heading. We need info, not someone telling us what we already know. A useful article would be one giving the relevant, accurate contact details for the specific departments and people, at the respective banks, whom we can approach. This is pretty much a waste of time, as it stands. - Andrew Rowland

I agree with previous response to article, in that the article title is misleading.
I also find that the bank staff are not skilled to deal with out-of the ordinary scenarios. Such as the previous respondent saying the bank was unable to provide flexible arrangements or if they did, they turned out not to be implemented.
If the banks were sharp they would estimate the costs/loss of debt collection (such as loss due to reposession and auction sales) and then give some form of relief to the customer which is less than or equal to the loss they would have incurred via reposession. This way the bank is not affected and the indebted people still have a place to stay. In fact the bank would actually benefit as they would not bear prepayment risk and profits from lending.
As cycles go, these "indebted people" will soon have more disposable income again and pick back into routing payments. – Adam Clint Joseph

I am small business operator, and with increase in costs of everything, as well as a general slowdown, I am finding it very difficult to keep up my bond repayments. I approached the bank, but who do you speak to? If you are in Bloemfontein, you are screwed, you phone a call centre and speak to someone who tells you, in a nice way, that if you don't pay, your house will be reposessed. No suggestions of what could be offered, just pay or else. Everybody says speak to your bank, but they do not seem very sympathetic. I have approached them about extending my bond, I am talking about increasing by R100k on a R600k bond, on a property worth R800k to R900k with other assets of well over R1m.

I explained to the bank that I can settle a lease of 70,000, have money left over for some much needed operating capital, and after settling the lease, monthly commitments will come down by at least R3k per month, but they say I cannot afford the extra bond payments. I must pay off the lease and then re-apply for an extension of my bond.

So, at this point, I feel like saying to the bank take the house, as I am fortunate enough to have another house which is nearly paid for, give my tenants notice, and move in there. The banks in this country are ripping us off.

Fees are ridiculous. Fees are charged on every little transaction, as well as a monthly account charge. And due to the collusion between the banks (and don't try and convince me they don't) on the swings and roundabouts, every bank charges virtually the same fees.

The consumer in this country is getting spanked at every opportunity, and seeing as how we have an ineffectual government, that can or will not do anything about it, the poor consumer has no choice but to pay. No wonder people are leaving in droves. I too am looking at leaving. - Anonymous

The new measures currently being implemented by the banks have only been decided at management level very recently, and have not yet filtered down to the staff on the ground. Hopefully within the next month or so things will change, and while it may be too late for some it will be just in time for others. - Editor

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