With lockdown and its economic fallout causing untold damage to the economy, more and more South Africans are finding themselves on unpaid leave, reduced salary packages or laid-off entirely. This is placing many homeowners under severe stress when it comes to keeping up with their mortgage repayments and could well be deterring new buyers from entering the market as well.
Under difficult circumstances like these, it’s easy to give in to feelings of hopelessness. However, according to Leonard Kondowe, National Admin Hub Manager for Rawson Finance, there are actually some very achievable solutions for homeowners and prospective buyers trying to navigate home finance in the time of COVID-19.
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,” says Kondowe. “In fact, lenders are being extremely supportive of clients in financial difficulty due to the impact of COVID-19.”
Many loan agreements have built-in credit insurance which could help homeowners cover bond repayments until they’re back on their feet. For those without insurance, however, Kondowe says 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,” he points out. “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.”
Kondowe urges homeowners in genuine financial distress to approach their lenders as soon as possible, however.
“Don’t bury your head in the sand, fall behind on your mortgage payments and just hope all will be forgiven,” he says. “Lenders are open to compromise, but they’re not going to overlook those who default without explanation.”
When approaching your lender, Kondowe says 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,” he says. “Nine times out of ten, if you can prove genuine financial distress, your lender will be willing to help you out.”
Responsible finance for prospective buyers
Prospective buyers may view the current situation in a different light, finding great opportunity in the reduced prices of distressed properties and record low interest rates. For those wary of taking on debt at present, however, Kondowe says 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,” he says. “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, Kondowe explains, 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,” he says. “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.”