South African banks have provided a cumulative R45.56 billion – in financial relief and loan guarantees – to South African businesses and individuals who are financially distressed due to the Covid-19 pandemic and national lockdown, up to August 1, 2020.
This is according to the Banking Association of South Africa (BASA), as more than 3-million jobs have been lost since the start of lockdown, adding to the country's already dire unemployment rate of 30.1% in the first quarter of 2020, compared to the fourth quarter of 2019.
And the worst is not over yet. Many more South Africans are expected to face financial stress as the economy labours to get back on track.
BASA says that of the 84% of individuals and businesses requested payment breaks since March 2020, over 95% received assistance. 10% were rejected as they did not meet the requirements. Deep cuts in interest rates by the SARB also continue to provide further relief to individuals and businesses.
Added to that that, a number of banks have announced details of further bespoke relief on offer to their customers. The offering of each bank depends on their capacity and risk management policies, says BASA.
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These payment breaks are not debt “write-offs” and interest and fees on credit agreements will continue to accumulate, despite any necessary adjustment in terms. As at August 1, 2020, participating banks had received 39 677 applications for the guarantee scheme. Of these, 23% have been approved by banks and taken-up by businesses, while 36% are in the process of being assessed.
Banks usually consider a property to be “distressed” when the homeowner can no longer afford the bond repayment and has consistently missed the monthly payments.
The foreclosure process by the bank can start as early as when the bond holder is two months or more in arrears. “In the banks’ experience once somebody is more than two months in arrears they are unlikely to catch up again and so they usually begin the legal process,” says Johan van Schalkwyk, Principal at Leapfrog Roodepoort.
Contact a trusted property advisor when (or before) you default on a payment as they have experience in selling distressed properties and can advise you on the best way to make sure your home gets sold at the best possible price, in the shortest possible time. If you have built up enough equity, this option means that you may have enough money to pay off your outstanding bond, as well as other debt.
This is by far a more favourable outcome, when you consider that in order for the banks to foreclose on a property and take it to auction they are required to follow the legal process, which involves taking judgement against the owner. This automatically results in the borrower (mortgagee) being blacklisted, Van Schalkwyk shares.
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Paul Stevens, CEO of Just Property says leveraging a home loan can be a solution for those under severe strain, but warns the decision needs to be carefully considered. If you need access to credit in the short term, this will help you avoid going into arrears and tarnishing your payment record.
“Such relief will still attract interest and compound interest over the remaining term of the bond,” warns Carl Coetzee, CEO of BetterBond.
“It will also extend the repayment period of your home loan beyond the original term of the loan. If you want to go this route, take advantage of low interest rates and pay extra into the bond as soon as possible to negate the deficit."
Taking money out of your Access Bond
This offers the cheapest access to funds, especially as we’re currently in a low interest rate cycle. It’s the best option if you need assistance creating liquidity during these unprecedented times, says Coetzee.
Unlike the payment relief option, additional interest will only attach should you withdraw these funds, and there are no additional costs.
Repayments are adjusted monthly in line with the funds utilized over the remaining term of the bond.
Getting a re-advance
Like an access bond, this allows you to withdraw from the funds that make up the difference between the original registered home loan amount and the outstanding balance.
In this case a formal application needs to be completed, giving all income and expenditure details; this will be subject to normal credit vetting. Generally, the interest rate originally negotiated remains in play, but no registration is required.
“To be most effective, the consumer should ensure that the new calculation is taken over the remaining period of the loan and does not extend it beyond that period or you will just attract more interest,” says Coetzee.
Taking out a further home loan
“Bear in mind that this option attracts additional costs,” Coetzee warns. “If included in the loan amount, these can attract interest over the term of the loan, depending on whether the original bond was approved before or after the NCA.”
Your home loan provider will charge an initiation cost of approximately R6 500, and registration with attorneys will attract additional costs. A further advance or further home loan needs to be registered in the Deeds Office and while this usually takes 3 weeks, there are significant delays currently being experienced due to the pandemic.
Explore the option of a much shorter term (e.g. 5 years) so as to attract less interest. “Where banks do offer this, the interest rate will be determined by your risk profile.”
Restructuring your current home loan
While the details differ from bank to bank, your risk profile will be taken into account for this option, too. There could be a renegotiation of the interest rate and an extension of the original term. A longer term could mean lower repayments but more interest, says Coetzee.
"Switching" your institution
Moving your bond from one institution to another attracts considerable costs. This should be seen as your last resort. There is an initiation fee of around R6 500 and cancellation fees of, on average, R4 000. There’s also an entirely new application and credit vetting process to go through.
“Before making this decision, weigh the possible reduction in interest over the period of the loan against the effect of all the costs incurred,” Coetzee advises.
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"If, after careful consideration, you decide that leveraging your bond is not the option for you, then selling your property, especially if you have equity in it, may be the right thing to do. It’s a buyers market in much of the country, so if your property is priced right, it should sell."
