Owning a property is a form of forced saving
Buying a home has several advantages over renting, such as the sense of ownership and not needing to get permission from the landlord to do anything to the home.
“Another major advantage to buying a home instead of renting one is that owning a property is in fact a kind of forced saving,” Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, says. “The reality is that most South Africans do not save enough money for their retirement. The country’s current household saving rate is around 16%, which is relatively low when compared to other emerging markets.
“Paying money into a bond every month is a way of building equity and putting money away for the future. A homeowner will be able to sell the home that they have paid off over 20 years and downsize. This will offer welcomed financial relief when it is needed most. South African’s that have rented for their entire lives will have no asset to sell,” says Goslett.
In order to make the most out of the property investment, the secret is to get into the market as soon as financially viable. “Although it may require the buyer to initially tighten their belt to meet the monthly repayments, assuming there are no drastic changes, a 20 year bond will decrease in real terms as the buyer’s salary increases. This will make the bond more affordable as time passes. Essentially, the earlier a buyer gets into the market, the better off they will be,” he says.
Visit the bank
Once a prospective buyer is ready to get into the property market, they may be tempted to hit the show houses as soon as possible. However, it is best to start by paying a visit to the bank or a bond origination company to see how much you qualify for. The pre-qualification process is essentially an affordability assessment based on the buyer’s earnings and credit profile.
This will provide the buyer with a predetermined amount that they will qualify for when applying for a bond. Getting pre-approved gives the buyer an idea of what price bracket they can shop around in, narrowing down the search considerably and helping to reduce the risk of disappointment.
It is important to factor in all costs when determining what is affordable, such as transfer fees, attorney fees and any renovation costs if applicable. It is also advisable to consider that South Africa is currently in an interest rate hiking cycle. Should rates increase, it is vital that the buyer can still comfortably afford the home.
Goslett says that once a buyer has found what they think is the right home, they should get a trusted second opinion from friends and family members, who will look at the property with an objective view and possibly point out any defects that the buyer may have initially missed. These aspects should be taken into consideration when making the offer.
Once the offer has been accepted by the seller, the next step is to approach the bank for a bond. Goslett says that buyers can either approach the bank themselves or make use of a bond originator. The service provided by the bond originator is at no cost to the buyer. The benefit of using an origination company is that they will apply at all the banks at the same time in order to secure the most preferential interest rate. Provided that all paperwork is in order, the buyer should receive an answer regarding their bond approval within a week.
According to Goslett, while it might be tempting to look at a 30 year bond option because of the lower monthly repayments, the interest amount paid on the bond over the longer term of the loan will be significantly higher.
“Taking the necessary steps to purchase a property will provide the homeowner with an asset in their name that can provide them with good returns on investment over the long term,” Goslett concludes.