Advice and Opinion

Mortgage bond defaulters causing banks to tighten loan criteria

A recent National Credit Regulator report says that in the third quarter of 2013 approximately 70,000 South African home owners were 90 or more days behind in their mortgage repayments. The report added that defaulters owed the banks about R38 billion, which is just over 12% of the total home loans of R308,9 billion.

These figures, says Bill Rawson, Chairman of the Rawson Property Group, help explain why the banks have to be ultra-cautious in lending to the home mortgage market. However, he says, if, as many economists now predict, the era of low-low interest rates is coming to an end, we could see as much as a 2% rise in the rates within the next year and the likelihood is that defaulters will again increase in number. There is a growing danger that if this happens, the devastation in the property market caused by the banks and their disciplinary/rectification measures in 2009 to 2011, will be repeated.

“The banks’ reaction to the average defaulter’s problems in the recent global downturn was in most cases to repossess the home. In doing so they effectively destroyed the residential property market for two years, causing prices across the board to drop by 10% to 30%. We in this sector, i.e. those responsible for selling homes, now plead that a different approach be adopted this time if and when the number of defaulters increases again.”

Asked to define what these different measures might involve, Rawson said that as the banks and mortgagees suffer severe financial losses when repossessions take place and judicial liquidations are imposed, he hopes that in future, in consultation with the estate agency fraternity, the banks will work with defaulters to find solutions which will not involve them losing their homes.

“Many of us in the estate agency sector,” he said, “suspect that the losses the banks incur when they do resort to the drastic action of repossession are probably greater than the losses that would be incurred by taking a more lenient attitude to defaulters and finding a solution in conjunction with them.”

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