It has been over three months since home loan payment holidays were offered, in response to the impacts of the Covid-19 lockdown. Ewald Kellerman, Chief Risk Officer for Absa Home Loans, provides insight into how the Absa Payment Relief Programme was engaged, by who, and what comes next.
Q1: Please explain how Absa, in response to the impacts of the Covid-19 lockdown, provides payment relief for its customers.
A: As a responsible service provider concerned with the health of our customers, we launched specific interventions to help our customers during the Covid-19 pandemic. The Absa Payment Relief Programme, which was launched on 30 March 2020, has been well-received. It provides qualifying customers with the option to defer payments on credit products for a period of three months and has no turnover limits or income thresholds. At the end of the payment relief, the customer has the option to keep their original term (which results in a higher instalment- to catch up repayments deferred during the relief period), alternatively the term is extended to keep future repayments affordable.
Q2: How popular was this initiative?
A: Since the launch of the programme, more than 135 000 Absa home loan customers have benefited from the relief, which amounts to more than R2.8 billion cash-flow relief over the three-month period. The programme is not purely limited to customers from vulnerable sectors though; customers across the board, from various sectors and all walks of life qualified.
Q3: What are the main reasons for engaging payment relief plans?
A: While it is too early to assess the full extent of the economic stress created by the pandemic, we have been speaking to our customers to get a view of their situation. The results suggest that most Absa Home Loan customers opted for payment relief due to an expected loss of income. The remainder either built a buffer or proactively rearranged their balance sheets by consolidating debt and lightening their monthly repayment load.
Our ‘Payment Relief’ base of customers has been thoroughly assessed and does not reflect higher risk than the rest of the portfolio. In other words, good customers needed relief as much as struggling customers. The feedback from the information gathered to date, is that many customers are thankful for the relief, and have managed to recover fully since lockdown restrictions were lifted.
Some need a little more help to get up to speed, while a small percentage of customers have lost their income completely. We are currently assessing the individual circumstances of such customers to assess whether further arrangements would help them out of this situation. Undoubtedly, some will experience severe prolonged stress and may have to consider selling, which the bank is happy to assist with.
To date we have determined that in terms of those that availed of home loan payment relief:
• 30% are self-employed
• 32% indicated that their distress was once-off
• 50% expected that their distress would be for a duration of about 3 months.
Q4: Assuming a customer’s financial circumstances will not improve beyond the initial 3-month payment relief, what is the next step?
A: We are constantly reviewing the situation around Covid-19 and its impact on Absa customers.
The next stage of relief we provide, aims to help customers to return to their traditional home loan repayment habits. The solutions offered to customers that require further assistance will be tailored to individual needs, in line with the easing of lockdown restrictions that have opened up majority of the economy and its sectors.
Q5: At what point does losing a home become a reality for a home owner?
A: Absa home loans prides itself in assisting customers to keep their homes by helping them in their moment of need. The term of a home loan on average is between 20-25 years. In such a long credit agreement, we understand that our customers can go through financial difficulty and our goal is to hand-hold them through the process to recovery. A customer loses their home when the property is sold at a sale in execution, due to non-payment of their home loan account.
Before reaching that stage however, Absa offers its customers various options and ensure all of those are exhausted to prevent a sale in execution. These solutions include short- and long-term payment arrangements; reduced repayments for certain periods; extended repayment terms; and debt counselling.
Where there is no affordability for continued repayments, we have a proposition that assists customers to sell their property. Our HelpUSell programme is intended to help Absa customers to realise the full value of their property, and to exit the credit agreement with minimal losses through the benefits and discounts that we offer.
Q6: Aside from the home loan payment relief, where can other savings be realised, and what has been revealed through these measures?
A: Over and above the aforementioned payment relief measures, Absa offers relief from an insurance perspective. If a customer has insurance with Absa, the following additional relief measures are also provided on request, to assist them in meeting their obligations:
• Customers are able to miss two months’ life insurance premiums without affecting the cover they have in place. This has assisted customers to the value of approximately R60-million to date;
• If customers have credit life policies with us, we can extend our benefits to cover a customers’ installments for a wider range of loss of income events. We have proactively contacted 176 000 customers to offer this relief and have paid R57-million retrenchment and loss of income claims since lockdown; and
• Absa also provided its short-term insurance customers with a 15% discount on their premiums for the months of May and June, which benefited 56 000 customers to the value of R17-million.
Risk cover is vital and we all have to prepare for unforeseen circumstances. As a home buyer, it is important to prepare for any eventuality and have peace of mind. Types of risk cover include: short-term cover and life insurance (important in ensuring that your home loan is protected in the event of death or retrenchment); disability cover as an add-on; and Absa life cover that can be debited to a home loan account monthly and will stay active while your loan exists and for which a medical examination is not required. We also offer a fully underwritten and comprehensive option.
Q7: Does Absa provide access to financial consultants to aid its customers in understanding their financial circumstances?
A: We are fully committed to forming deeper relationship with our customers and, to this end, we have time-honoured interventions to help them recover from financial hardship. All cases are considered individually, depending on the specific circumstances. For those in financial difficulty (including those predating the Covid-19 crisis), Absa has the ability to craft personalised credit solutions, based on individual and unique needs. These include all-encompassing forbearance offerings, short- and long-term payment plans, comprehensive debt review processes and distressed property refinance options.
Such interventions are ongoing and we encourage Absa customers to contact us immediately when their financial circumstances change. Importantly, Absa proactively contacted all debt counsellors notifying them that customers impacted by the pandemic may be eligible for relief, and that where consumers have indeed been impacted, they would be provided relief through the Debt Review process. This process was later adopted by the NCR as the appropriate form of relief for impacted consumers under debt review.
In the short-term though, we recommend that a customer review their income and expenses, and to pay into their home loan what is affordable. Payments, no matter the amount, indicate willingness of the account holder to service their credit agreement.
Ultimately Absa urges its home loan customers to approach us immediately when there is an indication that their ability to repay their home loans will be adversely impacted. In so doing we are able to structure payment assistance plans that have a longer-term effect.