BUYING YOUR FIRST HOME

If 2023 is the year you buy your first home, you need to read this

Taking that first step towards owning your home can be daunting at the best of times. After all, it is possibly one of the largest purchases one can make. Home ownership may seem a stretch too far for first-time buyers, says Carl Coetzee, CEO of BetterBond, given the current economic climate. Rising interest rates, electricity tariff hikes and increasing fuel costs may see first-home buyers think twice about investing in property.

“But this should not be the case. As with any sizable purchase or investment, regardless of the interest rate at the time, affordability should always be the first consideration.” Currently, first-time buyers account for 60% of BetterBond’s home loan applications. “If first-home buyers know upfront how much they can afford to pay on a bond each month, they will be able to make an informed decision about their purchase.”

Affordability means being prepared for the hidden costs associated with buying a home. These include transfer duty (government tax), transfer costs (lawyer’s fees), bond registration costs and other expenses. “Buyers who obtain pre-approval from a bond originator can start the purchase process with a clear understanding of what they can expect to pay. Furthermore, pre-approval can also improve a buyer’s chance of securing a bond.” The current approval rate for clients pre-approved with BetterBond is 95% of all applications submitted to banks on their behalf.

“Shop around and work with a bond originator who can help secure a lower interest rate – called a rate concession. Currently BetterBond’s average interest rate concession when applying to four banks is 0.61%,” says Coetzee. This means that the interest payable on your bond will be 0.61% below what one bank would have offered you. On a R2 million bond, this monthly repayment at prime of 10,75% minus 0.61% – which amounts to 10.14% – would result in a monthly saving of R819.

Putting down a deposit will lower the amount of interest payable over the bond repayment period. “Fortunately, the main banks do offer loan products that provide loans of as much as 110% for applicants who meet certain criteria. This would make it possible to buy a home without having to pay a deposit,” explains Coetzee. Also, buying below the R1 million threshold will spare first-time buyers from paying costly transfer duties. Those with a household income of between R3 501 and R22 000 may also qualify for a Finance Linked Individual Subsidy Programme (FLISP), if they meet the criteria, adds Coetzee.

After a drop of more than 3% in 2021, BetterBond’s approval ratio for first-time buyers increased by 1.8% by December last year. “Market activity may have slowed due to elevated interest rates, but it has by no means stalled, and there are still plenty of opportunities for first-time buyers. Also, the possibility that the repo rate is nearing its peak and could start to drop towards the end of this year should motivate aspirant buyers to make this their year to invest in their own home,” says Coetzee.