Many young people live in rented homes, paying off their landlords’ bonds, simply because they don’t think they can afford their own homes.
But often, they actually can.
If this is you, then the first step you need to take to get on the property ladder is to change your mindset. After this, you need to establish whether you can afford to buy a property, and if you will be granted a home loan.
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Renting is not necessarily the safer option
Cobus Odendaal, chief executive for Lew Geffen Sotheby’s International Realty in Johannesburg and Randburg, says it is a widely believed perception, especially amongst young people, that it’s too expensive to own a home and that they cannot afford it; they believe it’s safer to rent because of the relatively short notice period it takes to reload.
“Nothing is, however, further from the truth. Owning a home opens many doors regarding credibility and directly refers to a much more stable individual.”
If you are at the point where you are wondering whether you can buy a property, he says you should sit down with a reputable property consultant and/or your financial guru and get an informed opinion on your individual circumstances.
“If this route is followed, there’s no reason why you should burn your fingers by means of over-exposure or by making an irresponsible, uninformed, or emotional decision.”
Echoing this, Paul Stevens, chief executive of Just Property, says the best way to change one’s mind about anything is to see the opportunity and the means to achieve it.
“For example, few people can simply get off the couch and run a 21km. We need the desire to get moving; a training plan; a partner to hold us accountable; a way of tracking our progress; and an event to commit to. It’s the same with property ownership.”
Ultimately, you need to have the desire to become a homeowner instead of staying a tenant.
“There are pros and cons when it comes to both renting and owning a house. Placing advantages and disadvantages alongside each other can help you to decide which carries more weight for you right now.”
Set up a plan of action
If owning a home has always seemed like a faraway dream, it doesn’t have to be, he says.
“The first step in any home ownership journey is to get financially ready. That means saving a fixed amount each month so that you know you have the means to commit to bond repayments. There are other steps in the plan, including getting creditworthy and understanding finance options like the government’s Finance Linked Individual Subsidy Programme (FLISP), and how best to get a bond.
“I’ve always seen property as one of the best ways to create wealth. There certainly are opportunities out there right now, and if you’re young or don’t have the capital to take advantage, co-buying, a buying partnership, or a syndicate can help you get a foot on the property ladder.”
Planning ahead is vital, agrees Jackie Smith, head of product management for ooba Home Loans. The first thing you need to do if you want to buy a home is to find a bond originator that can guide you throughout your journey to homeownership.
“From the get-go, you will be advised to start by getting your finances in order: find out what your credit score is and, if it’s below 620, we can help guide you through the process of improving it. Do your research on the area you would like to buy into and calculate your affordability using our free online Bond Indicator to get a better idea of your budget.”
Once you have these elements in place, you can start putting money aside for a deposit and the extra costs involved in buying a home. And then once your finances are in order, you can request a free pre-qualification which will give you a better idea of what you can realistically afford before you start shopping around.
“This also boosts your chances of being approved.”
Common misconceptions that you may also have
Smith says many young people who are new to the world of property mistakenly believe that, if they want to apply for a home loan, they should go straight to their own personal bank. After all, if you’re a client they will be more likely to approve your loan and give you a good interest rate right? Wrong, she says.
“Each bank has its own criteria when approving loan applications and your status as a client does not make a difference to this. You actually have the best chance of success using a bond originator. We will send your application to multiple banks and negotiate the best deal in terms of interest rates.”
A small reduction in the interest rate that you receive can lead to lots of savings in the long-term.
Many prospective homeowners also believe that it is cheaper to rent than to buy when, in reality, the instalments on a one-bedroom flat are often less than what you would be paying to rent the same flat.
Stevens agrees: “Buying may not always be more expensive month-on-month than renting. Look at the buying options as area, type of property, and financing all affect what a buyer needs to outlay.”
Furthermore, Smith says, “you are making a savvy investment in your future by paying off your own bond rather than someone else’s”.
As a young buyer, she says you must ensure that you are fully informed about the intricacies of buying a home in South Africa before starting the process. If not, you risk spending more money than you need to or having your application rejected because you don’t have all the necessary paperwork.
Is now a good time to move from being a tenant to a homeowner
Odendaal says it is also widely perceived that the market is volatile and difficult to enter in the current environment. However, whilst the market has been better, this is also the time when there is a better chance that the right property will come at the right price.
“Conditions like we’re experiencing now, point to a buyers’ market which allows for lower prices achieved in most areas. It is important though to be cautious, and have a 10% to 15 % buffer built into your comfortable, repayment ability.
“Following sound advice will put you in a favourable position given current market conditions.”
Property, like all investments, is cyclical, Stevens says, explaining that there are good years and there are not-so-good years.
“The ‘70s, ‘80s and ‘90s were volatile years, and the early 2000s saw a Rainbow Nation run of seven years where house price growth was over 15%. Then came the 2008 recession, and 2009 saw negative growth.
“Since then, the South African property market has wobbled along at a low average rate of growth; Lightstone’s Residential Property Index for March reports that national year-on-year house price inflation is at 4.51%, having decreased consistently since early 2021.”
He acknowledges that “we are in challenging economic and political times”, but that this is not only the case in South Africa as “we are heading towards a worldwide recession”.
He cites a popular Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is now.”
In the context of the conversation here today, this means that if you want success and growth in the future, the best time to act is now.
“But it is best to act conservatively; start with a small investment, invest with others, or buy a property with space(s) that you can rent out to spread your risk.”
Smith believes “it is certainly a good time to buy”. ooba’s latest data for Q1 of 2022 indicates that the banks are making home loan finance more accessible and affordable.
“The current record low deposit requirements, attractive interest rate discounts, and cost-inclusive loans, create an ideal environment for aspirant home buyers.
“Adding to this, banks are responding well to the increasing demand for ‘no deposit’ loans with an approval rate of 82% in Q1 22 in this segment, up on Q1 21’s approval rate of just under 81%.”
The data also shows that 64% of applications processed during the first three months of 2022 were from homebuyers who required financing for the full purchase price – a 5% increase on the same period last year.
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Extra words of wisdom
Fall in love with your dream-home, Odendaal says.
“There’s nothing wrong with that as buying your first home is an exciting experience. However, try to take emotion out of your decision when buying and follow your head. Get good advice from your property and financial advisers.”
Stevens adds that interest rates are on the rise and expected to be back at pre-Covid levels by 2024. This means that prospective homeowners need to factor in escalating bond costs.
“What you have to pay back to the bank today will not be the same as what you have to pay back in 12 months, for example, unless you fix the interest rate on your home loan. Don’t borrow or buy at the top end of your affordability and make sure that you have money saved to handle unexpected circumstances, like a temporary loss of employment.”
If you are a tenant who wants to become a homeowner, start your property search here.