Everyone who owns a home – whether it is still bonded or they have already paid it off – should check at least once a year to see that they have enough home insurance (HOC) to cover the total cost of replacing it if it is destroyed by fire, flood, or other disaster.
So says Shaun Rademeyer, CEO of South Africa’s leading mortgage origination group BetterBond, who points out that if your home is under-insured, as it may well be if it has increased in value since you bought it or if you have made additions and alterations, you could be in for a big financial blow if something untoward happens.
“Taking the example of a home bought 10 years ago for R500 000, this may well have doubled in market value to R1 million now, and will no doubt have an even higher replacement cost due to the fact that building costs have increased substantially in the meanwhile.
“According to Absa, for example, the cost of building a new home is currently 37% higher, on average, than the cost of buying an equivalent pre-owned home.
“But if the HOC has not been adjusted, it would only cover the original R500 000 cost of the property, so the ‘under-insured’ component of the replacement cost in the event of a disaster would be a whopping R870 000 – which the homeowner would have to pay himself. And that does not include the additional cost of any demolition that may be necessary, architects’ and other professional fees, and new local authority connections.”
Insufficient HOC, he says, is one of the unintended consequences of one of the lesser-known provisions of the National Credit Act (NCA), which is that home buyers are not obliged to obtain their HOC from the bank that grants their home loan.
“Homeowners are now free to source their HOC from other insurers, but if they do, they pretty much have to accept the responsibility for updating it themselves, much as they have to manage their own car insurance and home contents insurance to ensure that their belongings are adequately covered.”
It is also important, Rademeyer says, for those who have paid off their homes not to let their HOC fall away. “Just because you are no longer making monthly bond repayments does not mean that you should stop paying HOC premiums.
“In fact, as you get older, and especially if you are retired and living on a fixed income, it is even more important to ensure that your home is fully insured and that you would be able to replace it if necessary.”
With the demand for property still strong at the moment, a growing number of property owners believe the time is right to sell homes they have been renting out – but they should be aware that this can be difficult if they still have a tenant in place.
“Unfair as it may be, tenants generally have a reputation for not keeping homes in the best condition, and many potential buyers seeking a home for themselves will be reluctant to look at a property with a sitting tenant,” says Shaun Rademeyer, CEO of BetterBond, South Africa’s leading mortgage originator. “In many cases, even buy-to-let investors who might be interested in adding the property to their portfolio would prefer to find their own tenants.
“And incumbent tenants who do not want to move can create major problems for a seller. To start with, they may be difficult about giving an agent access to the property to show it to prospective buyers, or perhaps deliberately leave the home in a mess when they know the agent is coming round with potential buyers.”
He says tenants have also been known to try to block a sale by regaling potential buyers with every real or imagined fault in the property or the neighbourhood.
“In addition, property owners who have not made regular inspections may be in for a nasty shock when they decide it is time to sell because maintenance has been neglected, and expensive repairs are necessary before the property can be put on the market. And if pets or animals have been kept inside, the home will at the very least need thorough cleaning, and perhaps re-carpeting.”
There may, of course, be no problem where tenants have been carefully selected from the outset, says Rademeyer, and often if the property is to be sold, the best course is to first find out whether these sitting tenants might like to buy it themselves.
“But if that is not possible, it is generally better to give them reasonable notice and then prepare the empty property for sale, with the incentive for prospective buyers that it is ready for immediate occupation.”