Buying your first home is possibly the largest purchase you will make, so it’s important to be well-prepared for this important milestone, says Carl Coetzee, chief executive of BetterBond.
“After two years of comparatively low interest rates, we are still seeing considerable interest from first-time buyers who account for 60% of all BetterBond’s home loan applications.”
What is particularly encouraging, he says, is that there has been an almost 8% increase in the number of formal grants to first-time buyers for the past 12 month period (year-on-year for April), and an increase of just over 7% in the approved bond size for these buyers.
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If you are considering joining this group of first-time buyers, here are five ways you can enter the property market this year:
1. Affordability is always important when buying a home.
While you need to know what you can afford to pay each month on a bond, you have to also be prepared for the upfront costs associated with buying a home. These include transfer duty, transfer costs (lawyer’s fees), bond registration costs, and other expenses. Once you are a proud homeowner, you will also have to pay utility costs and regular repair and maintenance.
“It’s therefore advisable to obtain pre-approval from a bond originator so that you have a clear idea of what you can afford. Pre-approval also improves your chances of securing a bond,” Coetzee says, adding: “The seller will also see that you are a serious buyer who has already done the paperwork and credit checks.”
2. Use a bond originator
Although the repo rate is gradually starting to climb again, and the prime lending rate is now at 7.75%, he explains that a bond originator will apply to more than one bank on your behalf to secure a lower interest rate – called a rate concession.
Currently BetterBond’s average interest rate concession when applying to four banks is 0.61%, Coetzee says.
“This means that the difference between the highest and lowest offer you receive from the four banks is 0.61%. For example, on a R2 million bond, the monthly repayment at prime minus 0.61% – or at 7.14% – would result in a monthly saving of R745.
3. Put down a deposit
While it’s always advisable to put down a deposit when applying for a bond, even if only 10% of the home’s value, first-time buyers often don’t have the financial means to do so. However, South Africa’s main banks offer a range of loan products that include loans of as much as 110% for young professionals under the age of 30.
“A loan of 100% or more makes it possible to buy a home without having a deposit. It could also cover the transfer and bond registration fees that need to be paid upfront,” Coetzee says.
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4. Buy for less than R1m
Another way of making homeownership a reality if affordability is a concern is by buying below the R1m threshold. There is no transfer duty payable for homes below R1m, and this is a considerable saving for a new buyer.
Buying in a new development will also save you on transfer duty costs, although you will still need to pay transfer costs to the conveyancing attorney, he says. Furthermore, buying in a new development will save you money on repairs and maintenance for the first few years.
5. Consider the Flisp subsidy
First-time buyers with a household income of R3 501 to R22 000 may qualify for a Finance Linked Individual Subsidy (Flisp). The once-off subsidy amount has increased to between R30 000 and R130 504, depending on the applicant’s monthly income, and it’s now possible to obtain the subsidy without first having been granted a bond.
“This makes it even easier for qualifying applicants to own a home,” Coetzee says.
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