Mortgage defaulters stack up

Johannesburg - Mortgage stress among South African homeowners is at a record high, despite the lower interest rates since last December.

A sharp increase in unemployment is producing a burgeoning number of homeowners unable to meet their monthly bond payments.

In the second quarter of this year 72 000 home owners were four months or more behind in their mortgage payments, compared with 55 000 in the first quarter. This has emerged from new figures from the Alliance Group's Stress Index. At the same time 155 000 were two months in arrears in the second quarter, compared with 55 000 in the same period in 2008.

Alliance Group chief executive Rael Levitt says that as a result about 4 500 houses a month are forced to be sold on auction and by banks' quick-sale channels. He says the figures reflect the increase in distressed selling of property as homeowners have to face up to falling property prices.

Falling house prices result in many homeowners' outstanding home loans exceeding the market value of their properties. The owners are consequently trapped by a house worth less than the loan they entered into to buy it, he explains.

Although the number of distress sales in all provinces in June was higher than in 2008, Gauteng and the Western Cape were worst off. The Alliance Group's distress auctions in June increased by an annualised 112%, in which the four large metropolitan areas - Cape Town, Johannesburg, Pretoria and Durban - represented more than 70% of the national total.

He says lending institutions typically act against homeowners when their bond payments are 90 days overdue.

The process by means of which banks call up mortgage loans vary from bank to bank, but in the past 12 months they have come up with a variety of products to assist homeowners under pressure. The situation has pushed up the number of auctions as well as the number of opportunistic investors.

He says an interesting new trend is a rise in the prices fetched at auctions. "In February and March this year houses on auction fetched 35% less than last year's valuations, and in June for 25% below 2008 valuations.

He attributed this to the market waking up and beginning to realise that the buying opportunities now being presented won't last long.

Greater competition is now evident between buyers at auctions and, he says, attendance figures have doubled since November last year.

Between 400 and 500 people currently attend each auction, more than 150 of whom are registered bidders.

- Sake