Young couples, you can buy your own home – all it takes is common sense

BY BONNY FOURIE bronwyn.fourie@inl.co.za

Many dream of buying property but believe they won’t be able to afford the monthly instalments

EVEN without children and their related expenses, young couples worry about having their home loan application declined and feel that, with the rising costs of living, they will not be able to meet the bond repayments.

But this might not be the case.

A problem, however, says property investor Ben Malapile, is that young people think they need millions to buy a property, and so choose to buy cars instead, not knowing that the car instalment could be used to pay the monthly instalment on a home.

“Those cars that the youth buy lose value the moment they are driven off the showroom floor and can be stolen or hijacked, especially with the high crime rate in the country. Property, though, when bought right, will double in value in 10 years.

“The same hijackers can break into your house and take your personal belongings but they can never steal that property from you. It will always be yours.”

Many young couples who do not have children – and so have a little more leeway with their money – can become property owners, but they do not believe they can afford it. And there are many reasons why.

Some of the misconceptions, and advice from property experts:

We cannot afford to buy in the area we want to

It is always important to consider all factors before deciding which property, or in which area, to buy, advises Leonard Kondowe, the finance manager for the Rawson Property Group. This includes your lifestyle and affordability level.

If you cannot afford to buy in your area of choice but want to get a

foot on the property ladder, you should consider purchasing a home in an equally good area that is in line with your affordability – as long as the area presents medium to long-term property value appreciation.

“Should your chosen property appreciate and your financial position improve, you can then consider your dream area with proceeds from the sale of existing property as a deposit.”

Carl Coetzee, the chief executive of BetterBond, says that alternatively, if you have your heart set on a particular area, you could opt for a development that wouldn’t require the payment of transfer duties. Or maybe you need to modify your expectations and buy a smaller home that you can afford, with an eye to upscaling when you are financially able to do so.

“Or it may be that a fixer-upper is within your budget. Shop around and work with a reputable real estate agent who can source the most suitable properties for your needs and pocket.”

We do not know what we can afford in the eyes of the banks

Malapile explains that if buying as a couple, your gross salaries will be totalled and 30% of the combined gross income will be the monthly instalment you qualify for under the National Credit Act.

“For example, if you earn R15 000 each and your combined gross is R30 000, then the maximum monthly instalment you can pay is R10 000 per month. With R10 000 per month, you can buy a property for about R1 million.”

However, if properties in the area you want to live in cost R2m, then you have three options, he says: 1. Wait and save before making a move.

2. Rent in the area. This allows you to live there while you save for a deposit.

3. Rent to buy. This means you can rent it today for a year or two, with the first option to buy.

Kondowe says your agent will most probably suggest that you get a pre-qualification certificate to determine your affordability. This will also give you an idea of the type of property you can buy and the size of bond you can apply for.

“A deposit is also always good to have, so at least you will know exactly what your course of action will be in terms of finance in order to purchase the property.”

We are struggling to save for a deposit as the cost of living rockets

Malapile says the fastest way to save for a deposit and transfer costs is to keep your expenses low by staying with parents while you accumulate savings. But not all couples have this luxury, so they have to find other ways to save.

“Couples should open a separate savings account or 32-day notice account. Every month, they put a portion of their salaries in that account. If they get a bonus every year, they should try putting 100% of that bonus towards the savings to accelerate the growth.

“Within one or two years, you would have saved a significant amount of money.”

This does not mean that you should starve yourselves.

“You should develop a reward system for your savings. Once you reach a milestone, you should celebrate it. This way you also get to enjoy the journey towards the purchase and not associate the purchase with hunger and starvation.”

As hard as it is to have sufficient

funds to use as a deposit, it does play a favourable part when banks are considering your interest rates, Kondowe explains.

“Mortgage loans with lower loan-to-values percentages often attract better rate concessions. Of course, each client may present different risks to the banks and rates are individualised, dependent on the overall risk profile presented by the applicant.”

When it comes to saving, every individual circumstance is different and therefore it can never be a onesize-fits-all approach.

He says, however, it is often advisable to settle and close small loans with high-interest rates first as this might assist in increasing your disposable income.

Coetzee says there are many advantages to putting down a deposit, so it is worth taking the time to save at least the equivalent of 10% of the anticipated purchase price.

“A deposit will greatly improve your chance of getting your bond approved. It also indicates to the seller that you are a serious buyer and they are more likely to negotiate the selling price with you.”

A deposit of at least 10% will reduce the gross household income required to qualify for the bond, and it will also reduce the monthly bond repayment, which will make your home more affordable and reduce your annual household expenditure.

“As an example, on a R2m bond at the current prime lending rate of 8.25%, the monthly bond repayments will be R17 041. But if you are able to pay a 10% deposit, the monthly bond repayments will drop by just over R1 700, to R15 337.”

To start saving for a deposit, he says, you should work out a monthly budget with a clear indication of expenses and household income.

“Use one of BetterBond’s calculators, such as the deposit savings calculator, to work out how much you need to save, and for how long, to put together a deposit on a home. You could also create a separate savings account for your deposit, so you won’t be tempted to spend it on other expenses. Set a clear goal – a deposit of at least 10% of the purchase price is recommended.”

If we do not have a deposit, can we get a home loan?

If you have not saved up for a deposit, there are other ways to apply for a home loan, Coetzee says.

“South Africa’s main banks offer a range of loan products that include bonds of as much as 110% for professionals younger than 35, so affordability need not be an obstacle. A loan of up to 110% makes it possible to buy a home without having a deposit… However, it is important to note that buyers making use of these 100%+ loans will have higher monthly bond repayments.”

Kondowe agrees, saying that banks do grant up to 100% loans, with some even granting up to 105% of the purchase price to qualifying buyers. The 5% is used towards bond registration costs.

Echoing this, Malapile says you do not need a deposit to buy a property; you just need to be able to afford it under the National Credit Act.

“Even if you have a huge deposit to put into a property, I’d suggest you apply for a 100% home loan and open an access bond facility (each bank calls it something different), and then put that deposit in the facility.

“This will help reduce the interest you are paying significantly and the best part is that you always have access to those funds. So, after a few years when the family has grown and you want a bigger house, you can use the money in the access facility to pay for the new bigger home.”

He warns, however, that just because no deposit is required does not mean you get a bond and move into your new home. Other costs need to be paid, such as transfer fees and bond registration.

BUYING a home may be easier than many young couples think. PICTURE: TOA HEFTIBA/UNSPLASH