Now more than ever, applying for a bond to own a home may be the best financial decision you make.
Buying a home is often described as one of the most significant decisions you will ever make, not only financially but also emotionally. Paying off a bond is a long-term commitment that can be daunting at the best of times, and is now even more so as South Africa grapples with an economic recession in the midst of a global pandemic.
But notwithstanding the massive economic impact of COVID-19, there is no denying that it has also helped create an ideal lending environment for buyers who would otherwise have been unable to consider property as an investment.
Five successive repo rate cuts since January has led to the significant drop in the prime lending rate, from 10% to its current historic low of 7%. As a result, property is now more accessible, meaning that more South Africans - many of whom would otherwise have been unable to qualify for a bond - will now be able to afford their own home. The implications of being able to invest in a tangible asset, and use this as economic leverage to perhaps buy a larger property or have access to funds to start a business and improve one’s standard of living, are far-reaching.
Affordability is a massive challenge for many home buyers, especially those who have never owned property before. The current lending environment, coupled with the raising of the transfer duty threshold in February to R1 million, has stimulated the first-home buyer market, with BetterBond’s applications from first-home buyers in July up to 70% year-on-year. BetterBond’s data shows that the average monthly household income of first-home buyer applicants is close to R40 000. So, buyers with an individual (or combined) income of this amount, and with a maximum bond repayment of R12 000 and an interest rate of Prime at 7% over 20 years, are now able to afford a home valued at close to R1.6 million - almost R305 000 more than would have been possible at the start of the year when the interest rate was at 10%.
Although affordability has vastly improved for consumers, it is also important for them to assess their finances carefully as well as their overall budget and ensure they don’t over-extend themselves and perhaps buy slightly below their maximum affordability to allow for inflation and interest rate increases in the future.
With the current lending environment, buyers are able to not only gain that all-important foothold on the property ladder, they are also more likely to be in a financial position to sell the first property to buy a larger home, or move to a new area. For many, this will be the lifeline they need to improve their financial stability.
House prices may have dropped in some areas - especially at the upper end of the market where price correction was already a factor even before the pandemic - but there are signs of growth, particularly in the lower and middle price ranges, and property remains a sound investment. Furthermore, given the cyclical nature of the property market, these buyers could be selling their properties for considerably more than they initially paid when the market rebounds.
In July BetterBond achieved record application numbers in its 20-year history with the number of bond applications increasing by 51% year-on-year. This can no longer be attributed to pent-up demand created during lockdown. It is a direct result of the low-lending environment and the banks’ appetite to provide finance, and suggests a significant shift in buyer confidence at a time when there is widespread uncertainty.
Furthermore, it is expected that, given the recent modest repo rate cut of just 0,25% in July, and the SARB’s own forecasts into 2021 and 2022, we can look forward to sustained low interest rates. So, while the aftershocks of the pandemic will undoubtedly be felt for some time, we are in the fortunate position that interest rates have improved enough to motivate more first home buyers to own property.
Anne-Marie Bamber is Norgarb Properties dedicated Home Loans Consultant. She has over 15 years’ experience in assisting clients with their Home Loan needs and has placed many happy families in their dream homes.Contact her today for no cost stress-free home-buying.Anne-Marie BamberHome Loans consultantTel: +27 (0)21 851 3568 | Fax: +27 (0)21 441 1494 | Cell: +27 (0)82 071 1665E-mail: anne-marie.bamber@betterlife.co.za
