Thumeka* (not her real name) is a 47-year-old live-in domestic worker who earns R6 500 a month. In 2017, after years of renting RDP houses in Khayelitsha, Thumeka purchased her first house in the area. This was a dream come true for her. Thumeka had wanted to own her own house for many years and finally had a property she could pass on to her children. To quote Thumeka:
“I was tired of living in other people’s housing. They were charging me a lot of rent for starters and they would put their own rules in their houses. Even if I did not like them, there was nothing I could do. And I also wanted my kids to have their own home.”
The Finance Linked Individual Subsidy Programme (FLISP) supports first time home buyers who earn less than R22 000 and want to purchase their own homes with a mortgage. The subsidy is a lump sum amount that enables affordability by reducing the capital amount required to finance the property purchase. While the subsidy is ordinarily paid upfront, the Western Cape Provincial Department of Human Settlements will make the subsidy available retrospectively provided the transfer has taken place within two years of the application
APPLICATION FOR RETROSPECTIVE FLISP SUBSIDY
Thumeka approached the Transaction Support Centre
in November 2019 asking for assistance with applying for a retrospective FLISP subsidy. She had signed the sale agreement for her property in October 2017 but because transfer only took place in April 2018, the sale fell within the two-year retrospective FLISP time limit.The property Thumeka purchased was a 124 square metre, two-bedroom house in Khayelitsha that was valued at R300 000. Thumeka paid R70 000 upfront upon signing the sale agreement from her own savings and took out a R230 000 mortgage bond for the remainder. Thumeka’s monthly bond repayments including insurance amounted to R2 700, approximately 43% of her monthly income. This exceeds the ‘rule-of-thumb’ housing affordability ratio of 30% of gross monthly income. Thumeka was committed to paying her mortgage and never missed a monthly bond repayment, but by the time she approached the TSC she was under severe financial strain.
In addition to the high costs of the property transfer and bond registration process (see Figure 1), Thumeka had incurred unexpected maintenance costs of approximately R13 000 to fix electrical and plumbing problems on the property.
Figure 1: Transfer and bond registration costs
The sale agreement includes a clause that requires the seller to provide an electrical and plumbing compliance certificate (see Figure 2), and prior to the sale the estate agent promised to have an electrician and plumber check the property. But in fact this never occurred. And by the time Thumeka took occupation of the property, transfer has already gone through and she was unable to hold the seller and estate agent liable for the problems.
Figure 2: Sale agreement clause in OTP regarding electrical and plumbing compliance
In addition to maintenance expenses, Thumeka’s mother had become ill during this time and she had to cover additional monthly costs to pay for a caregiver. After sharing her financial concerns with a friend, her friend referred her to the TSC for assistance with the FLISP.
“What made you decide to apply for the FLISP subsidy when you did?
Client: I heard about it from my friend. I was struggling financially. Like after the bond stop order, then I would have very limited amount of money left for me to even eat. Or for anything at home. So I decided to give another try via the office [the TSC].”
The TSC assisted Thumeka prepare her FLISP application, gather the necessary documentation, submit and track the application through the Provincial Department of Human Settlements administration processes. The application was submitted on the 14thof November 2019 and was approved on the 6thof February 2020. In line with Thumeka’s income, the value of the subsidy was R107 056, or approximately 45% of the principal debt owed to the bank. This subsidy would result in her monthly repayment declining from approximately R2 700 to R1 500 (including insurance and monthly service fees).
Table1: Mortgage loan amount pre-and-post FLISP
Thumeka’s excitement about the subsidy approval was in part dampened by the long delay in the subsidy pay-out. As outlined in Figure 3 below, it took over three months from the date the subsidy was approved for the funds to be paid out to the bank. A full month passed between the letter of undertaking being sent to the bank and the subsidy pay-out. While some leniency can be afforded to the Department due to the Covid-19 national lockdown, other FLISP subsidy applications facilitated by the TSC have also seen long delays between subsidy approval and subsidy pay-out. These delays may not only be a function of the Department’s administration; it is not clear whether the bank’s internal processes might have contributed to this delay. In addition, it took the bank nine days to inform Thumeka that they had received the funds and restructured her loan. This, of course, created immense anxiety for Thumeka.
A full timeline of the FLISP application and pay-out process for this case is provided below.
Figure 3: FLISP application timelines
THE JOURNEY TO BECOMING A FIRST-TIME HOMEOWNER
Thumeka’s experience of buying her first property was not easy. When we spoke with her, she highlighted the lack of communication from the estate agent throughout the process. She also described the issues she encountered with the electricity and plumbing in the property. It is not clear whether the bank granted the mortgage without the required certificates or whether these certificates were provided by an unscrupulous service provider. In addition, there was no one to advise Thumeka on her rights and potential avenues for recourse when it became evident that there was a problem with the electrical and plumbing connections in the property.
What was the process like of buying a property – was it easy or hard?
Client: Yoh!…That was so complicated. I almost had a heart attack. It was a tricky, tricky journey to go. I had to wait for long, long, long time before everything was finished.The agent was supposed to help me with each and everything. But they hardly did anything, those guys. The only day they were really hands on was when they took me around to view a couple of properties before I chose the one that I bought. And the other day was when I had to go and sign the OTP in their office. After that there was nothing they did. I only saw them when I had to collect the keys for the house. I wouldn’t say they were that helpful at all.
What were the other things you were not satisfied about?
Client: It was my first house, I was a first time buyer. They were supposed to guide me and tell me from this step we are going to that step. They were not communicating at all. If I didn’t pick up the phone and ask where are we now or what’s going to happen, they will just keep quiet. And also on the OTP, I was supposed to have an electric certificate and a plumbing certificate which somebody had to go and check up on those things, if they were up to date and okay but definitely something was not right somewhere.Because they just sent someone to go and check the electricity and a plumber but to my shock when I got there the day I moved in nothing of that sort was done. There was a lot of electrical problems. I had to call in an electrician to come and fix the motherboard, there were no plugs. A lot of things were just wrong. And the plumbing as well. I had to spend a lot of money fixing those things. And as a woman I don’t have much knowledge of electrical and plumbing things. So I did not really know what to check when I moved in if the things were right or wrong.
The property Thumeka purchased was originally a state-funded RDP house. A timeline of the property’s history is provided below. As shown, after the original beneficiaries and homeowners passed away the property remained in the deceased estate for four years until the heirs decided to sell the property.
Figure 4: Property history
PRIOR KNOWLEDGE AND EXPERIENCE OF THE FLISP
Typically, FLISP applications are submitted during the sales transaction. We asked Thumeka if she knew about the FLISP before purchasing her house. She indicated that she did know about it and had inquired about her eligibility and the application requirements at the Department of Human Settlements. She was told that she didn’t qualify – quite possibly because officials thought she wanted to apply for an individual subsidy. To quote Thumeka:
“I did actually [know about the FLISP] but I did not know how to go about it. And then I decided to go to the Housing department and ask about it. So I was referred to an office in town. I tried, but the information they gave me was so contradictoryto what you guys gave me. And that information is very different to what they tell people out there. It made me not to qualify according to what they told me at that point. I couldn’t qualify salary wise, it was like they are offering disabled people and senior citizens. There was a lot of contradictory information, and they told me they only do it at the 1stof April until the end of April and that’s the only time they do it.”
IMPACT OF THE SUBSIDY
As mentioned, Thumeka’s subsidy pay-out of just over R107 000 equates to 45% of the principal debt owed to the bank. Given that at the time of the subsidy pay-out Thumeka had already made 25 payments on her mortgage bringing the outstanding capital amount down to around R228 000, with the FLISP, her outstanding debt reduced to R121 600 and her monthly repayments are expected to drop to R1 500, 22% of her monthly income. The reduced burden of the loan repayments offers Thumeka the opportunity to invest more money in fixing the outstanding problems with the property, including a leaking roof. She would also like to tile the cement floors and add a wall at the back of the property for security purposes. But beyond this, the subsidy pay-out has provided Thumeka with much needed peace of mind that she can make ends meet while still achieving her goal of becoming a homeowner.
“What impact will this subsidy have on your financially? How will it help you?
Client: It will relieve me a lot, financially. It will relieve a lot because right now as we speak I have a leaking roof that needs to be fixed and I will need money to fix that. So if maybe my monthly payments are reduced, then I can fix that house properly. There are things that still need to be fixed in the house.”
IMPACT OF COVID-19 LOCKDOWN
During our interview with Thumeka we also explored if the Covid-19 lockdown had affected her in any way. Fortunately, because she is a live-in domestic worker and only returns home on the weekend to stay with her adult son in the house, she has mostly been buffered from the impact of the lockdown.
LESSONS LEARNED & THUMEKA’S FUTURE HOUSING PLANS
While this is certainly a good news story for Thumeka, there are many issues raised by this case study. Top of the list is the apparent lack of professionalism and care displayed by the estate agent. Not only did he fail to secure necessary certificates but he also neglected to provide the buyer with any information on the FLISP. The bank too did not advise their client about the availability of the subsidy at the time she applied for the mortgage, and appears to have exceeded standard thresholds on affordability. There is also the inaccurate information regarding the FLISP subsidy shared by officials at the Department of Human Settlements. Had Thumeka not approached the TSC and not received the FLISP, she may well have defaulted on her loan, losing her house and the investment she made in it. In addition, the slow turnaround times of the FLISP subsidy pay-out and poor communication from both the DHS and bank concerned are issues that require attention.
Beyond this, Thumeka’s closing remarks in our interview offer insight into some of the social challenges that come with buying a property. Thumeka commented that she was currently looking to rent a house elsewhere for herself to stay on the weekends. She spoke about never feeling welcomed by her neighbours and the local street committee in the area. This has created a lot of tension and stress for her. For this reason Thumeka asked that we don’t share any pictures of her property. Her immediate plan is for her adult son to remain in the property, and to rent out the other room for additional income. And while she doesn’t regret purchasing a house, she regrets purchasing in the area. Next time, she says, she will be more careful.
Information on the timeframe for retrospective FLISPs varies. According to the Western Cape Department of Human Settlements website, the FLISP application must be within 12 months of the date of registration, while the Department’s brochure states two years.
The money was paid to the estate agent and held in an interest-bearing account until the date of registration
The bond was granted over 20 years at a variable interest rate of prime plus 1 (11.27%)
At the time of writing this case study Thumeka had not yet received the exact details of her loan restructuring from the bank