Interest rate hiking is putting financial pressure on homeowners, leaving many struggling to keep up with their home loan repayments and contemplating a forced sale.
These higher interest rates add pressure to hard-hit households carrying debt and today’s predicted rate hike - expected to be between 50bp and 75bp - will add extra pressure. However, there are ways to hold on to your status as a homeowner.
Adriaan Goslett, regional director and CEO of RE/MAX of Southern Africa, urged those who bought their homes on the edge of their affordability scale to do the necessary repayment calculations ahead of today’s Monetary Policy Committee (MPC) meeting to make sure they can afford the higher repayments.
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Consumers and homeowners have had to already - before today’s hike - absorb an additional two percent increase since November, says Seeff Property Group chairman Samuel Seeff, adding that another rate hike shock will be dire for the property market and economy.
Some homeowners, who could face losing their homes, are considering their options, including turning to their banks for assistance or selling.
For homeowners in this difficult position, banks and property experts say there are ways to help them either keep their homes or at least retain their titles as homeowners by downscaling to a more affordable property.
Below are six ways to survive these tough times.
1. Communicate
Banks want to keep people in their homes and so encourage homeowners to contact them when they see they are approaching financial difficulty.
There are proactive measures to identify and assist customers who show signs of financial distress, irrespective of whether the customer has missed a payment or not.
Contact your banks or home loan providers as soon as you realise you are unable to make payment on your bonds.Talk to your bank about the various assistance plans for customers who are in distress.
All banks urge homeowners not to wait until the banks’ collections and recoveries team or department contacts you.
2. Enter into a new agreement
If homeowners find they are unable to pay the full instalment on their home loan, contact your home loan provider and inquire as to arrangements that could be made.
Since each homeowners situation is different it is important that you seek a unique way to move forward with the help of your financial institute.
If you are experiencing short-term distress you may even be able to negotiate a lower repayment for a short time while you get back on your feet.
Worst case scenario with the financial crisis you are in being a long-term one, some banks will help you sell your property and find a more affordable home to move into.
Banks will look favourably on clients who contact them first, especially if homeowners confront the debt issue before it escalates.
Some initiatives to assist struggling home loan customers include restructuring payments, agreeing to interest-only payments for a time or reducing instalments over a specific period.
3. Consider selling before it is too late
If none of the bank’s options are suitable, homeowners whose accounts are up to date could sell their properties privately or with the assistance of an estate agent.
Banks also have assisted sales programmes.
Experts advise you speak to an experienced agent and get your house on the market. An agent will do their best to get you the best price for your home.
4. Debt-proof your home (those considering buying now)
Before you get to a stage of being pressured here are some ways to upfront help yourself before you buy a home:
* Pay a larger deposit: Making a bigger down payment will mean buyers will need a smaller home loan and can negotiate for better rates as they’re negotiating from a stronger position.
* Secure a lower interest rate: When applying for a home loan it’s generally a good idea to shop around to see what the different banks offer – negotiating a low interest rate (when possible) can do much to decrease costs on a month-by-month basis.
* Pay a little extra each month: The more money you can pay into your home loan every month, the better. This can help reduce your loan term and help you pay off your home loan quicker. Even R500 extra a month can make a big difference. Homeowners can also consider making some extra money from their homes by renting out any extra space, agents say.
5. Refinance and consolidate debt
If you have owned your property for some time, you could have plenty of equity and a mortgage broker could be able to consolidate your debts.
6. Consider downsizing or alternative ways of living
If you have more than one property consider selling one of them. Or you could find a smaller home in a cheaper neighbourhood and downsize. You could even rent for a while, or move in with family or friends until you get on your feet. It is not the end of the road. Many people have made the move to alternative ways of living even including mobile homes and shared accommodation and have done so successfully.