The past three years have not been easy on many consumers’ pockets, and with the year-end just single-digit weeks away, there is the possibility that the festive season may further impact tight budgets. Not accounting for forthcoming costs associated with multi-gift purchases for those who celebrate Christmas, and/or a holiday away from home, or even treats during a time when most are winding down a difficult year, can create further distress.
WATCH : 5 simple budgeting techniques to adopt when preparing for your first property purchase.
The end-of-year break is also, traditionally, a time of review and reflection. It’s a time to consider what the past has taught you and how to move forward with your dreams and better meet your goals. Planning ahead should be an essential part of the review process, whether it’s for the forthcoming holiday season’s financial impacts or just prepping your personal budget to start the new year without regret.
That time starts right now, says Absa’s Zain Khan, Leader Strat Comm & Stakeholder Relations, and Kefilwe Zelda Sekhonyana, National Manager Pre-Legal Collections.
Do not default on your home loan
Sekhonyana tackles one of the most difficult point of debates for many homeowners, who, when facing the end of year expenses, may make unwise choices that lead them to consider defaulting on their home loan.
“This is not a good idea,” says Sekhonyana. “A home is the place where we raise our family, where we go to recover, heal, and restore ourselves when we feel tired or ill. It is a place where we make memories, and it enables us to create asset value in our financial portfolio for retirement and estate purposes. This means that our property is so much more than an account that we need to pay off; it is an investment that can keep on giving for generations to come. The home loan requires, therefore, a more sensitive approach than other short-term credit purchases, which is not to say those aren’t important.
“Should a customer be faced with the unfortunate situation of not being able to meet home loan payments for a couple of months, or in the worst-case scenario, being unable to meet the home loan instalment commitment, it is vital to immediately engage with the Home Loans Collections team the moment they foresee financial difficulty,” she says. “Time is of the essence; the sooner a customer advises us of their financial situation, the sooner we will be able to look at the different plans or options we have in place that will best assist the customer.”
Absa’s Collections Department presents, the programmes on offer to financially distressed customers based on the unique nature of a customer’s financial circumstances. These comprise short- and long-term solutions.
“Short-term plans include allowing for home loan instalments to be reduced for six months and can, potentially, be extended depending on the customer’s situation. Concessions can also be applied, which can reduce the monthly home loan instalment to as low as 25% of the Contractual Monthly Payments, but this is usually only in extreme cases and based on the customer’s affordability.
“Long-term, there is a chance that the home loan could be restructured. This includes the bank allowing you to extend your home loan instalment for a longer term, say by 360 months, which will reduce the monthly instalments. This is called forbearance, the acceptability of which is primarily dependent on the customer meeting an affordability criteria and which is an individual assessment based on individual circumstances.”
One of the greatest fears for home loan account holders who are in a terrifying position of losing their homes due to financial difficulties is that the bank will repossess their homes. However, Sekhonyana makes it clear that this is always the last resort and only if all other remediation efforts fail. “Primarily, we want our customers to hold onto their homes. We understand the emotional attachments and the need to be able to provide a roof over the heads of a family, which is why, if we are unable to resolve their financial distress with a credit solution, we will first appoint a dedicated team to assist the customer to see their property.”
This bank-assisted sales programme is called HelpUSell and motivates the selling of the property for the highest possible offer. “It allows the customer to work together with the bank in the sale process, and should there be a shortfall post the sale, Absa is prepared to grant concessions or rebates to allow the customer to extricate themselves from the debt.
“The Bank will always do its best to support customers in troubled times. This assistance is dependent on our customers’ willingness and receptiveness to engage and accept the alternative options by working with the bank to reach a mutually sustainable solution,” says Sekhonyana.
Prepping to buy a home in 2023
If 2023 is the year you are determined to buy your first home or even a new home, Khan says that upfront, the best first step is to save for a deposit.
“A deposit is a lump sum of money that is paid towards the overall cost of the home or land you are buying. Being able to put down a deposit is a big advantage as it lowers the amount of the loan required and ultimately also means you will pay less interest over the loan period.
“In essence, putting down a 10% deposit on a R1-million home could save you almost R1,000 per month, which means you will be paying around R240,000 less in interest on the loan over 20 years,” says Khan. “Also bear in mind that in paying a deposit, the home loan amount applied for is lowered, thereby reducing the required monthly instalment and positively influencing affordability factors for the applicant.”
In difficult times, where the consumer is stressed by rising inflation, higher costs for fuel, food, transport and rate hikes, a pertinent question is revealed: how do you save for a deposit? Khan has a single-word answer: “balance”. ” Balance is key to much of life, whether it’s sticking to a food or exercise regime or managing personal finances. If you want to save for a deposit, it will likely take discipline and being smart about the plan you put in place.”
The bottom line, says Khan, is to create a habit of saving. “A savings mentality means becoming a smart consumer, and Absa encourages its customers to engage with the multitude of financial products to help induce this change of mindset. We obviously realise that no single person can control market movements, but we do promote the idea of being in control of how you react to those changes and how you can take control of your financial circumstances.”
To kickstart your thinking to ensure you can plan for the purchase of a home in 2023 and have sufficient budget capacity to make home loan repayments affordable, Khan offers the following advice:
- Prepare a realistic budget: first, factor in essential purchases like bread and milk, leaving luxuries for last.
- List fixed costs and expenses (bond repayments, education fees etc.), followed by variable or changing costs (water and electricity, telephone bills etc.)
- When all expenses are added together, and if this results in costing more than your monthly income, you’ll need to reevaluate your costs and cut down.
- Ideally, you should limit your expenses to allow for a fixed amount directed towards a monthly savings programme.
- Investigate the best banking option for your individual needs; often, you can save substantial amounts on bank charges by opting for a transactional value bundle.
- Savings accounts allow you to grow money that is invested. Absa has a range of savings accounts to suit every budget. Ask about our Tax-Free Deposit Account or TargetSave.
- Do your research: most savings accounts usually pay tiered interest, which means more money in your account will enable more interest return. You will find that every cent counts.
- Savings accounts are designed to encourage savings, so if you have more than two transactions a month through your bank account, it is then best to do those through a transactional account. This will allow your savings to escalate.
- Be disciplined. Budgeting and planning for your future require commitment. Ask your Absa consultant about a contractual savings account, which allows you to save a fixed amount every month for a chosen period of time. With Absa’s TargetSave, individuals can save from as little as R100 per month for a minimum period of six months.
- Be responsible with credit. Buying on credit may be convenient; however, the knowledge, priority and consolidation of your debts, as well as aligning your lifestyle to what you can actually afford, is vital.
- Get professional advice. Navigating through all the varied savings and investment options on offer can be confusing. Visit your nearest Absa branch and get some advice from an expert.
From the above expert advice, it is clear to notice that budgeting is an important financial tool which can help you to plan for personal financial commitments and investments.
Writer : Kerry Dimmer