Managing home loans properly vital

AS banks tighten their lending criteria‚ more homeowners are choosing to consolidate debts into their home loans – but that could spell trouble down the road for South Africans who are not careful about personal finances.

The costly credit environment is resulting in people taking further advances on their home loans to pay off other debt‚ resulting in smaller monthly costs‚ but a total cost of potentially multiple times more.

According to Shaun Rademeyer‚ chief executive of BetterLife‚ which offers home loans‚ in the past three months there had been an uptick in further advances on bonds – when a consumer borrows against what has already been paid off on a home‚ usually to pay off other‚ short-term debt.

In March alone‚ BetterLife saw an increase of more than 48% compared with January and February.

SA Home Loans‚ another large mortgage finance provider‚ has also seen a marked increase in clients looking to consolidate their debt‚ according to Guy Saville‚ an executive at the company. For some consumers‚ consolidation into a home loan is a measure of last resort to increase month-tomonth cash flow‚ so an increase in such activity could be indicative of more South Africans living larger than their means.

While paying only one debt each month instead of a multiple could sound appealing‚ running into trouble paying off a house was much more serious than getting a car repossessed‚ Rademeyer warned.

“If you are unable to make the repayments on your enlarged home loan‚ you could lose your home.”

According to Ewald Kellerman‚ Absa’s chief risk officer for mortgages‚ although the first quarter normally showed an increase in the number of further advance applications‚ this year his bank had seen the value of further loans increase faster than the rate of new purchases.

Kellerman said the reason customers applied for further advances varied widely‚ including paying school fees‚ funding renovations‚ or using the equity to purchase an investment.

However‚ Rademeyer warned it took financial discipline to make this work.