Three top banking institutions have disagreed with their competitor Absa bank over a key issue: how much homebuyers must earn to qualify for a 100 percent bond on an average pre-owned home.
In its quarterly report, Absa suggested that homebuyers now had to earn at least R19 000 a month.
Its residential property review shows that the average price of a medium-size pre-owned home is now around R575000. An 80 percent bond on such a home, at a preferential interest rate of 10,5 percent, would put the monthly repayment at about R4 600, requiring the buyer to have an income of between R15 000 and R18 000.
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Alternatively, to accommodate the repayments on a 100 percent bond, the buyer would need to earn between R19 000 and R23 000 a month, the review says.
The buyer would still need a 20 percent deposit, as well as enough cash to cover the transfer duty and other purchase costs.
Luke Jooste, head of credit at FNB HomeLoans, said his firm did not agree that a prospective homeowner needed to have an individual or joint monthly income of R19 000 to afford a middle-class home as this was not the result of a prescribed method of assessment.
He said FNB HomeLoans assessed each home loan applicant as an individual, looking at a number of variables to see whether the applicant could afford the home, and what percentage of the purchase price he or she would be prepared to finance.
“FNB HomeLoans provides a financing option called BondPlus, is aimed at primary- home buyers and not just first-home buyers. BondPlus allows the customer access to 100 percent of the purchase price of their house as well as the funds needed to cover extra costs to a maximum of eight percent of the purchase price.
“In order to qualify for this product, applicants need not meet the R19 000 monthly income criteria alluded to (in Absa’s home loan review),” said Jooste.
Leon Barnard, director of home loans at Standard Bank, told Saturday Star that first-time home buyers needed to earn a gross monthly income greater than or equal to R13 000 to afford a middle-class home of R400 000.
“The bond repayment would amount to R3 860 per month. There are additional costs in the form of insurance [and] assurance, administration fees which will have a marginal increase on the bond repayment.
“In general we look at 30 percent of a customer’s monthly gross income as being the maximum bond repayment. Hence, a person with a gross monthly income of R20 000 can afford a maximum instalment of R6 000,” said Barnard.
The head of Nedbank home loans mortgage support, Mark Boshoff, said the institution always had the customer’s best interests at heart and offered products tailored specifically to the first-home buyer.
“Alphabond allows you to borrow 108 percent of the property value. You may utilise the additional amount to cover costs such as transfer fees and bond registration costs,” Boshoff said.
He added that, while the average house price might be R575 000, this did not mean that value for money was beyond those willing to shop around.
Flats and townhouses could be acquired for far less if the buyer was prepared to spend time investigating the options.
A report in an Afrikaans Sunday newspaper has stated that, going by the Absa review, first-home buyers should be prepared to accept far more modest accommodation initially – with a view to upgrading later.
An alternative, perhaps, might be to buy a larger, older home with plenty of space and rent part of it out to supplement the bond repayment.
Voicing shock at Absa’s home-loan overview, Gerhard Kotze, group chief executive for the real estate agency ERA South Africa, said banks and government could be doing more to encourage home-ownership among young people.
“Clearly a multipronged strategy is called for, possibly including 30-year bonds, tax relief for bond repayments and subsidies for genuine first-time home buyers,” he said.
STOP before you shop
If you’re a first-home buyer, who cannot afford monthly repayments on an average-priced home, you should consider:
Preparing well in advance before you decide to buy.
Get your finances in order, reduce your credit; work out how much you can comfortably afford. Obtain from a consultant a pre-approval amount for which you qualify. Knowing how much you qualify for allows you to narrow your search. You will also be in a much better position to act quickly should the right house come your way.
Deciding on the lifestyle you aspire to and the kind of home you ultimately want. Identify the areas that match these criteria. Shop for the lower-priced properties in that area which you could later renovate into your dream home.
Townhouse developments, which are booming at present, provide lower-priced property options as opposed to free-standing property. Sectional title homes allow you to fix external maintenance costs through the levies, whereas with free-standing properties you are exposed to the full cost as and when it occurs.
Finding out whether your employer offers a home-loan scheme product that may assist you in acquiring your home. As a staff member you may be subsidised or the employer could provide guarantees.
- This article was originally published on page 10 of Saturday Star on March 26, 2005
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