The significant decline in the number of people who can keep their mortgage accounts up to date clearly illustrates the level of financial distress consumers are currently experiencing.
 
Historically around 92% of all mortgage accounts were up to date, but it has been dropping quite dramatically in recent times. The latest available figure shows it is down to 88% in the last quarter of 2023. That means home loan accounts with arrears have increased by about 50% recently, and it happened in the relatively short time span of 18 months to December 2023.
 
Globally inflation has been quite stubborn and interest rates remain high as a result. In South Africa the repurchase rate (repo rate) of the South African Reserve Bank reached its highest level in 15 years, says Renier Kriek, managing director of Sentinel Homes. This means the prime rate, used to price home loans and other consumer debt like car loans and credit cards, is elevated.
 
High inflation, and the high interest rate response, has been caused by a confluence of factors including the hangover from previous quantitative easing, supply-chain bottlenecks during the Covid-19 pandemic, the Russia-Ukraine war and the recent conflict in the Middle East.
 
Despite earlier predictions that the high interest rate cycle could turn around in May this year it is now only expected next year due to high inflation proving stickier than anticipated.
 
“Being unable to afford your home loan instalment is not a position anyone wants to find themselves in. Steer your own boat rather than leaving it to the vagaries of the foreclosure process. Not taking control of the situation can be financially disastrous,” advises Kriek.
 
Prevention better than cure
He urges homeowners to come to an agreement with their home loan credit provider before they miss the first payment. Stick to the arrangement. Do not over-promise and under-deliver.
 
“If you couldn’t make an arrangement in advance of missing a payment, and you’ve already fallen into arrears, pay something toward the debt immediately. Just pay anything you can and keep on doing that as a launchpad for negotiations with your home financier.” Accounts that are receiving payments are less likely to face hand-over and foreclosure than accounts receiving no payments.
 
“Do not let unreasonable hope be the enemy of your future financial well-being,” he adds. If the cause of your financial distress is unlikely abate within a reasonable time, call it a day and list the property for sale with an estate agent. Be realistic and pro-active.
 
He recommends that distressed homeowners market their property before the home financier’s attorneys come knocking, ensuring a better return on the sale. “You will also avoid a slew of additional costs once the bank starts with the foreclosure process. These only serve to make your poorer, adding insult to injury.”
 
Some people, particularly men in Kriek’s experience, tend to be too proud to discuss financial matters with family and friends. Many families are caught by surprise when there is suddenly talk about foreclosure, having missed the opportunity to assist along the road. “Reach out to the people you love and trust, there may be a lifeline from someone who will understand your circumstances and can assess the situation with much higher fidelity than a remote credit provider.”
 
Forbearance before foreclosure
Credit providers may be willing to assist a distressed homeowner by offering a payment holiday or by granting an interest-only period. It may also be possible to spread any existing arrears over a few months ‘repayments or extending the term of loan.  This is especially true when the bar to payment is temporary, such as hospitalization or sudden retrenchment
 
It is also important for consumers not to fall prey to over-enthusiastic debt counsellors. Many unscrupulous operators in that industry market debt counselling as a cure for all debt related ills. Entering debt counselling may not, in fact, save your home, but may still have a potentially disastrous effect on your future finances. For instance, debt review stops you from taking any new debt for several years while the debt review is completed.
 
Kriek says there is a general misconception that home loans are “money-spinners” for home loan companies such as the banks. It only takes a couple of missed payments for home loan provider to be “under water” with a home loan. Do not labour under the misapprehension that you are doing the bank a favour by having a home loan with them – the home loan itself is not a very lucrative proposition.
 
Nevertheless, the fixed costs of originating new home loans are quite high. Banks, home loan or credit providers generally prefer to rehabilitate existing customers rather than terminating the agreement, foreclosing, and then having to originate new debt.
 
Take all opportunities to steer your own boat off the foreclosure rocks.  Your finances cannot afford to be shipwrecked there.
 
ENDS

 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

The local property market will see a resurgence in 2024 predicts Renier Kriek, Managing Director at Sentinel Homes.
 
"People have been held back from buying and selling property by various factors since before the COVID lockdown, but that is about to change for the better," he says.
 
Factors impacting the local property market
In South Africa, property buying and selling have dropped steadily since 2021. In 2023, market volume was about 5% lower than 2019.
 
The factors driving this decline include load shedding, the national logistical backlog, a stalling economy, runaway inflation, the rising cost of living, and a 475 basis point increase in the lending rate since the COVID lockdown ended.
 
However, people's life circumstances continue to change, suggesting pent up demand building below the surface.
 
The number of first time buyers – a solid indicator of market demand – has also decreased significantly, again implying that unsatisfied demand exists.
 
Outlook for 2024
Two main events signal that things are about to change.
 
First, economists agree that, as inflation slows in South Africa, SARB will likely reduce the interest rate at its May or July National Planning Commission meeting in line with the US Fed.
 
Second, the country will hold general elections this year, and probably be led for the first time by a coalition government at national level. While this might concern South Africans, it also promises to bring new energy to solving the nation's dilemmas.
 
Kriek believes both these events will turn out well and will provide a release for the evident demand for property. "Then, we'll see a dramatic increase in market activity," he says.
 
Several lesser trends are also worth watching.
 
Smart money in the market
Right now, there's a lot of smart money in the market – entities that buy properties to boost their portfolios, not their lifestyle.
 
Interest rates on mortgage loans have decreased significantly, partly because banks are competing for a shrinking market, but also because these investors are richer, have better credit records and present a much lower risk than the average buyer. They are also paying higher deposits up to 105 percent.
In the same vein, wealthy buyers from abroad are snapping up luxury properties in Cape Town above R20 million.
 
This trend is sure to continue into 2024 as that smart money looks to acquire more assets before the market turns.
 
Semigration
Semigration remains a major trend in 2024 and smaller towns will continue to be targeted for gentrification, no longer only in the popular Western Cape but across the country.
 
As more affluent buyers seek stock in these locations, incumbents will see their property value rocket.
 
This may not be the only incentive for them to sell, though. Increases in rates and the cost of living may become unaffordable for them, pressuring them to move elsewhere. But where will they go?
 
With more than 80 percent of all building plan approvals being in coastal areas currently, the answer is plain to see.
 
Co-buying
There is a marked increase in co-buying, that is, people buying a property together with someone other than their spouse. This includes friends, unmarried couples, investors and those with business intentions. About one in every four properties purchased is now co-bought.
 
This approach overcomes the gap between property prices and income, and is a way for younger people to enter the market while spreading risk between them.
 
Banks have also changed their policies to accommodate co-buying, with some allowing up to 12 individuals to join in the application.
 
Buy-to-let boom
The buy-to-let market is booming, especially in the Western Cape. One reason is that, due to insufficient stock and higher property prices at the coast, many semigrants rent while they shop around for an affordable property or while their new home is being built.
 
This growing demand provides a good incentive for buy-to-let landlords to invest in new homes and apartments, despite the high construction costs.
 
Almost 11% of all bond applications are currently investment purchases.
 
Smaller properties
Another continuing trend in 2024 will be smaller plots and smaller properties.
 
High construction costs make it very difficult to create new stock that competes with existing stock in the market.
 
So, both tenants and buyers will have to adapt to reduced living space unless they can afford to build their own at a premium.
 
Relief for homeowners
The number of buyers may be low but owners are also holding onto their properties for dear life, in the face of crippling interest rates.
 
Unfortunately, foreclosure may have forced some to sell. Yet, the predicted drop in interest rates promises relief to those who managed to stay afloat.
 
It could also mean an influx of buyers for anyone who desperately wants to unburden themselves of their property.
 
When will the change happen?
Kriek expects the dam to break in the coming winter. This is not a prime time for property sales, however, especially in the Western Cape. During this season, people tend to buy fewer properties or buy them at a reduced rate.
 
"With lower transaction volumes during the winter months, there is likely to be a slight buyer's market that will turn to a seller's market in spring," he says.

 
ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes