First National Bank (FNB) Namibia calls on home owners to constantly update their payment or risk losing their homes.
The head of home loans, Thomas Slabbert, says purchasing and owning a home is a good way to build wealth. However, home owners need to make every provision possible to repay their bonds, even when faced with financial difficulties, because “there are a number of serious consequences for defaulting on your home loans.”
Slabbert insists not fulfilling bond repayments will not only jeopardise this important asset but can also have an adverse effect on one’s entire financial life, including their credit record.
“The judgment remains attached to one’s profile for five years, making qualifying for simple things such as cell phone contracts, credit cards or short-term loans very difficult within that period. Other major issues that arise from defaulting on bond repayments include the high cost of legal fees. If a home loan account is three months in arrears, financial institutions will usually start with some sort of legal action. Worst case scenario, one’s property could end up in an auction if they are unable to settle the account,” he emphasises.
In addition, having a negative credit profile can also affect various aspects of one’s life, including finding employment, as many employers do credit checks.
Bank of Namibia (BoN)’s recent quarterly bulletin shows mortgage loans and instalment credits to households has increased with the support of the prevailing accommodative monetary policy stance.
“Mortgage credits to households, which account for the largest credit type extended to the sector, has risen by 3.6% on a quarterly basis, compared to 2.1% at the end of the previous quarter. On an annual basis, it has increased by 14%, especially at the end of the second quarter of this year.”
Credits to households thus grew faster at the end of the second quarter of 2012, compared to the previous quarter, due to strong growth in instalment credits and mortgage loans.
By the end of the second quarter of this year, household credits stood at N$33.8b, representing a quarterly growth of 3.8%, compared to 2.5% at the end of the preceding quarter. Mortgage loans are the largest part of household credits, followed by instalment credits.
On the other hand, the September Financial Stability Report (FSR) notes household debts, at a percentage of disposable income, stabilised during the first half of this year, although it remains at a relatively elevated level by international standards.
“The risk of an increase in household debt for the next six months remains unchanged as observed in the FSR March 13, however, debt levels warrant monitoring going forward,” the current FSR states in part.
Notably, the household debts are dominated by mortgage credits. As such, any change in the interest rate may place an additional repayment on households.
With regard to ways of paying the house bonds, Slabbert insists personal budgeting is key.
“Your bond is one of the first payments that need to be made each month. One way to ensure you are not tempted to miss a payment is to use salary deductions. Another way is via a debit order, as soon as your salary gets into your bank account. This ensures you are aware of the amount remaining for future budgeting,” he notes, adding, admitting that one needs financial help to finish off a house payment means that their bank can make provisions for them to ensure they keep it.
Interest rates in Namibia are at historically low levels (5.50%) and this broadly translates to low prime and bank deposit rates, which have meant that the cost of borrowing is relatively low and so is the return on bank deposits.