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P A E L E H T G N I K MA ENT OR BUY A HOUSE? IS IT BETTER TO R By First National Bank
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uying a home for the first time is a big decision, and all aspects of this financial and long term commitment should be weighedup carefully, including whether buying or renting will put you in a better financial position. “There are many different aspects to take into account when considering buying, this is especially true in the affordable housing market where 96% of our customers are first time buyers. This means that almost all our customers are making the leap from renting to buying for the first time,” says Simphiwe Madikizela, head of projects at FNB Housing Finance.
Here are a few guidelines which outline the fundamental differences between renting and buying. Finances when buying How you are faring financially is possibly the most important factor when deciding to buy a home for the first time. Financially, there is a big difference between renting and buying. Buying a home attracts upfront costs, which need to be budgeted for. For example, a R500 000 home, will attract R10 000 in bond costs, which is the amount to register the bond with the Deeds Office. While there is not transfer duty on this amount, which is the tax owed to SARS, there are still transfer costs of R12 100, which are the fees paid to the conveyancing agency for their services. If you secure an interest rate of prime plus one (10.25%), your monthly repayments on a R500 000 will be R4 900. “However, these are not your only monthly costs,” says Madikizela. “As a home owner you are also responsible for rates and taxes, levies (if your home is in a complex), water and electricity as well as household insurance for the goods as well as the structure.” Over and above the bond, in this assumption, you should budget a little
extra, to be safe, suggests Madikizela. Maintenance of the property is up to the home owner. If you are buying make sure that you budget for ongoing maintenance, so set aside money every month for an unforeseen issue such as a leak or your place needs painting, you don’t go into debt to keep your house in good order.
Finances when renting When renting a property, you will need to provide a deposit, which is normally a month’s rent, in addition to the rent for your first month. This deposit is used to cover any damage when you leave the unit or house. Once the deposit is paid, you will only be responsible for paying your rent and utility bills, electricity and water, on a monthly basis or as set out in your lease agreement. “It is very important for renters to also note that they will, in the majority of cases, be expected to have their own household insurance in place. This is to cover your own personal goods that are in the rented house in the event of a burglary or a fire. However it is the home owner responsibility to have his or her own building insurance, which covers the actual structure of the flat,” says Madikizela.
Assessing whether renting or buying is the best decision for you “This will never be an entirely straightforward decision,” says Madikizela. “If you are able to afford the bond and the additional monthly payments as well as the money for added costs then you are probably in a good position to buy.” Furthermore, although the bond repayments may seem steep in the beginning, in most cases, after a few years your income position will be stronger and towards the end of the
20 year period the bond will not have increased with inflation, you should afford the repayments easily as well as have an increase in capital value of the actual home,” says Madikizela. When will renting put you in a better financial position? “There are a few factors that go into renting,” says Madikizela. “One is your long term position; do you move around a lot, are you planning on travelling or taking a break from your employment at any stage?” Buying is a long term commitment, and it isn’t an easy process to sell a house, which may actually put you on a financial back foot if you have to sell in a relatively short period. “However, if you are renting, Madikizela suggests that you build up your financial position with the outlook to one day be a home owner. “There are advantages to both renting and owning your own house. Make sure you take all the different aspects when doing your sums and where you are in your life currently to make the decision,” concludes Madikizela. www.spotongmag.co.za
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