Be pro-active: avoid foreclosure of your property

Industry Comment by Theuns Hanekom

Be pro-active: avoid foreclosure on your property

Many of you would agree that the property boom of the previous two or three years, have seen property prices soaring through the roof. It is not uncommon to find a 70 square metre flat or duplex costing R 750k or even much more in certain areas. Quite often you would hear current home owners say how fortunate they are to own their property already, as they might not be able to afford their current property if they had to buy it again today. How are first-time home buyers, especially young people, able to afford to enter the world of property ownership?
As a result of a cumulative five percentage points’ increase over the past 18 months and tighter credit criteria implemented by the banks, it has become increasingly more difficult to set foot in the property market. Gone are the days where first-time home buyers could include their costs in the loan amount, and a 100% home loan these days are almost unheard of. A person, who could have afforded a 100% home loan on a property purchased for R 950k two years ago, would now only qualify for a home loan of R 650k.
Current home owners should do therefore whatever they can, to stay in the property owners’ market in the face of a tough economic environment and an ever increasing cost of living. Although these are very difficult times for many property owners, they should keep a long-term view of their investment in mind. So, if it means that you should stop eating out, cut back spending on clothing and other luxuries and postponing your holiday plans for a year or so, you will be well rewarded if that means the difference between keeping or losing your house.
Unfortunately, due to many reasons such as the loss of your job, unexpected illness and subsequent medical bills, etc, it does happen that some home owners may no longer be in a position to pay their monthly bond installments. Should this ever happen, it is most important to make contact with your bank immediately and explain your situation to them. Do not wait until you have missed two or three payments. Rather be pro-active and contact them as soon as you realize that you are unable to pay your bond.
The banks would much rather attempt to help their clients and restructure a repayment plan before initiating foreclosure procedures. They may extend the terms of your loan, thereby reducing your monthly payment. If you have a short-term’s cash flow problem, the banks may assist you with a three-month “payment holiday”, or even decide on an “interest only” payment for a short period. Of course, these interim measures will increase your total debt over the long term, but at least you will be able to keep your house. It is also highly probable that you will sell the property prior to the expiration of the bond term and, hopefully, you would be able to absorb those additional costs through good capital growth. Another way of alleviating cash flow problems is to register a second bond over your property in order to consolidate all your other debt such as credit cards and vehicle finance.
However, as willing as the banks are to assist clients in distress, they will not be able to help all their clients. If you approach the bank because you cannot make your monthly bond payment but you still have your DSTV subscription, the banks have to wonder if the client is really serious about wanting to survive financially. The banks will look at assisting clients where it is likely that they would be able to meet their normal installments in the medium term going forward. If it seems unlikely that the client would be unable to meet his obligations over the long term, it might be in the clien’ts interest to try and dispose of the property as soon as possible in order to avoid foreclosure proceedings.