banks would far rather help than repossess homes
14 April 2008

Latest rate increase, which pushed benchmark mortgage rates to 15 percent, will increase the number of borrowers unable to meet their monthly mortgage repayments and banks are looking for ways to limit the damage.

Monthly repayments are up by 32 percent in less than two years. The monthly repayment on a R500 000 mortgage over 20 years has risen by R1 592 to R6 584. At the same time, consumers are paying more on a range of short-term debt as well as for food and fuel.

The latest rate hike puts the most pressure on those already behind in their repayments. In a worst-case scenario, they face losing their homes to settle their debt.

However, banks typically are eager to avoid this outcome. Jan Kleynhans, the FNB home loans chief executive, said in a statement last week: "The last thing we want is to repossess homes of struggling customers."  Kleynhans pointed out that the repossession process was costly and burdensome. "We would rather sit down with a customer and work out ways they can repay their debt."

Among the options for customers not already in arrears, he said, was to pay only the interest portion of the home loan until their financial circumstances improved. Alternatively, FNB would allow customers to extend their payment period.  Other banks have taken a similar approach.

Gavin Opperman, Absa's home loans managing executive, said the bank allowed a moratorium on payments, provided clients talked to the bank about their problems. "The cost of sales in execution are prohibitive and we would much rather help consumers get through the bottom of the cycle."

Opperman said each case was evaluated on its merit. Two important considerations were the proportion of equity a client had in the home and how attractive the home would prove on the property market. He said Absa allowed clients to sell their own homes. "And we understand it takes longer to sell."

Erik Larsen, spokesperson for Standard Bank, said the bank would consider extending the term of the loan from 20 to 30 years. Alternatively, it would accept as little as 70 percent of the monthly payment for up to a year.

Herschel Jawitz, the chief executive of Jawitz Properties, said that while the low-income segment was the hardest hit, the problem was spreading and the latest rate hike increased the "possibility of a period of national house price deflation".

Ethel Hazelhurst, www.busrep.co.za