South Africans cannot afford their homes but also can’t afford to sell them

South Africans cannot afford their home loans but can also not afford to sell their homes because the expenses related to selling a house in South Africa can amount to more than R150 000.

Consumers are now probably paying almost 40% more on their home loans than they did in 2020, which makes a major difference to those whose income did not keep pace with inflation and interest rates, Ayanda Ndimande, business development manager of retail credit at Sanlam, says.

It also seems that there will not be any relief for consumers soon: all 23 economists who participated in a Reuters poll last month expect the South African Reserve Bank to keep its repo rate steady at 8.25% until the third quarter before any cutting can be expected.

If you cannot afford your home loan instalments, selling your house is also not an easy option. Elad Smadja, head of property bridging finance at Taurus Capital, says it takes months to process sales and transfer ownership at the Deeds Office.

During this time, you do not have access to money from the sale and consequently, instead of easing your financial burden, the high costs can become overwhelming and add additional financial stress. However, he says there is the option of getting bridging finance.

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You must spend money to sell if you cannot afford your home loan

Money must change hands to kick off the property sale process. Sellers must pay for rates clearance certificates and outstanding levies, as well as bond and legal fees. If you buy another home, you will need a deposit and there will be moving costs.

It typically takes around three months for a property sale to be completed, adding more stress to an emotionally and financially taxing situation. Having your money tied up in a property that you cannot access is cold comfort while you wait.

Smadla says bridging finance is not a standard loan. On approval, you receive an upfront cash advance which is calculated from the total amount you will receive from selling the property, minus bond cancellation costs, your agent’s commission and other costs.

You do not have to make regular payments like you would for a loan. Instead, when your property sale is officially registered, your attorney will settle the final balance.

“Working through your attorney provides a measure of protection that the whole process is transparent. Much information related to property sales is aimed at buyers, but sellers must be aware of the risks and tools they can safely use to mitigate cash flow challenges,” Smadja says.

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Cash advance from bridging finance

The cash advance comes out of the proceeds of the sale and you repay the cash advance plus a discounting charge. The charge is fixed in advance to ensure you do not fall into the trap of compound interest if timelines become delayed, as you would with a standard loan. Your application is based on your property, not your credit score. 

Smadla says consumers who want to sell their homes must keep these costs in mind:

• Bond cancellation: Bond cancellation costs are managed by the bank’s appointed attorney and include bond cancellation fees and pro-rata interest.
• Rates, taxes and levies: Sellers are responsible for paying rates, taxes and levies up until the property’s registration date.
• Compliance certificates: You will have to obtain certificates for electrical, plumbing and beetle infestation inspections. The cost for these certificates typically range from R500 to R1 000 each and potentially more if issues are uncovered during inspections as they will need to be fixed.
• Repairs and maintenance: Preparing your property for sale may require investment in repairs and maintenance to make it more appealing to potential buyers.
• Moving costs: Moving costs include expenses related to packing, hiring a moving company, storage, transportation and potentially temporary accommodation if your new property is not immediately available.