Over the past few years, residents of Cape Town have endured mountain fires, droughts, strikes and widespread violence, A junk status economy and an ever increasing government debt. All of which is likely to trickle down to the everyday South African, and many homeowners will be unable to afford their bond repayments. The outbreak of Covid may well be the straw that breaks the camels back. This can often be an overwhelming experience for homeowners, who may not know what to do next. It’s complex situation filled with anxiety, frustration, anger, resentment and disappointment – at least it was for us when we reached tough times! Here’s our advice to some of the common question that you should be asking yourself.
Fight, flight… and the often missed “freeze”. Depending on who you are, you will most likely do one or more of these basic human reactions to a very stressful event. The emotional and traumatic issue of losing the home can leave homeowners feeling as if they have no options. They may feel destined for failure, ridicule by friends and family and a sense of shame. Because of how we feel in these situations, homeowners often give up and tend to do nothing. But doing nothing makes it far worse.
Others try to divert the attention and make false promises to catch up on payments which inevitably leads to legal action and judgements; which, once made against your name, entitles the bank to sell or auction your home … even without your permission.
This freeze approach to doing nothing may well result in not only losing the home, but also losing their credit worthy name through a credit blacklisting. And it is that credit rating they will need most when bouncing back. Blacklisting is a 5-10year affair with higher than normal interest rates. That of course assumes creditors will lend to them again. In comparison, just loosing the home, allows a homeowner to bounce back within a year.
Therefore, try to take immediate action by accepting responsibility, taking control and acting decisively.
Consulting with a debt counsellor is advised. We understand it will not be easy, but it is advised! They will very quickly be able assess your financial situation without bias or emotional attachment and submit a proposed payment plan to all the creditors. An application will need to be made with the court to have the proposal granted and place the homeowner under debt review which cease any legal action being taken against the homeowner. It will inevitably prevent the bank from repossessing the property. It might affect future credit rating scores, but the property remains with you… in the short term.
If you can rectify the situation within a pre-defined time frame, this is a very suitable option. However, if the situation is longer lasting, or not rectified, the homeowner can be placed under administration and once again the bank can repossess the property to recoup its losses.
If there is no way of keeping the property, distressed homeowners have the option of selling their property to alleviate their debt burden and keep their credit rating intact, provided enough equity has been built up to cover the outstanding bond amount. In the situation where there is no built up equity, the property can still be sold, but the homeowner will need to arrange an acknowledgement of debt. In essence, you will have a loan with the bank for the shortfall.
Selling the property could get the buyer out of their current distressed situation quickly, thereby avoiding credit rating drops and/or blacklisting, whilst allowing a fast track to their re-establishment in the future.
A quick look on property 24 will reveal the same trends in many areas across Cape Town. The southern Suburbs is no different from the northern suburbs in this respect. Renting is much cheaper than buying in the short term. Its only after 11.5 years, that the pendulum starts to swing.
Take an example of the Six Building in Zonneblom. A 1 bed apartment rents for roughly R7500per month excluding electricity. That covers all rates, levies and water expenses. Over the first year, you would pay R90 000, and in the second year R94500, assuming a 5% rental increase.
To buy the same apartment would cost roughly R1 050 000,00 on average, and with a bond rate of 10%, that equates to roughly R10 000pm over a 20 year mortgage. That however excludes rates, levies and water and elec. The total bond paid in the first year would amount to R120 000
That’s a whopping R30 000 saved in one year just from renting. Property owners who are between properties, or who need to cut costs for a year and save, would be well off to rent for a 1 year period to assist with saving money.
If however, your looking to stay allot longer, then extrapolating the numbers, it reveals that only in year 11, does the pendulum swings and by year 15, renting is far more costly. By year 20, you would have saved nearly R1.5M+ simply through purchasing the property.
Buy long term, rent short term to save…