Property ownership is a numbers game


TURBULET MARKET aside, owning a home has never been more affordable or attractive. Defying the status quo and spurred on by the low interest rates, there’s currently a huge buzz around whether it is cheaper to buy or rent a home.

However, unlike other ‘flash in the pan’ trends, the time to purchase a home is right now. For those with leases coming up for renewal, I’d strongly urge you to do the sums and weigh up whether it truly is cheaper to rent than to buy. The culmination of record-low interest rates, more 100% home loan application approvals, and an increase in motivated sellers has resulted in a prolonged buyers’ market.

Interestingly, this trend has removed the barriers to entry for many first-time buyers, which may have a knock-on socio-economic effect in reducing housing inequality and access to homes in sought-after areas. Prospective homebuyers can also breathe a sigh of relief knowing that there are no transfer duties on properties purchased below R1 million.

An all-time low prime interest rate of 7% is driving tenants to become property owners. This is evident in the average age of ooba home loan applicants for the third quarter of 2020. On average, buyers are one-year younger from 38 to 37 years of age, while the age of first-time buyers has dropped from 35 to 34 years compared to the third quarter of 2019.

Monthly bond repayments are at an unprecedented low, and we anticipate that the current interest rate will remain in place for the majority of 2021. In saying this, we still urge potential buyers to factor in rising interest rates over the years to make sure that they are covered for every eventuality.

The table below (left) is a guide to help prospective buyers assess their monthly bond repayments against what they are currently paying in rent.

While banks are increasingly approving 100% home loans (also known as zero-deposit bonds), prospective buyers are urged to take the time to calculate how much their initial deposit could help to reduce their monthly repayments, thereby saving them money in the long-term. Taking out a 100% home loan will not only result in higher monthly repayments, but it could also mean higher interest rates.

ooba offers a free online bond repayment calculator so that prospective buyers can see how much a deposit will save them in the long-term. If you look at a 0% versus a 10% deposit on a R1 million house, the repayment will be R7 753 a month versus R6 978 with a 10% de-posit. This may not sound like a big difference now, but over 20 years at an interest rate of 7%, those without a deposit will have paid R186 071 more than those who put down an initial 10% deposit.

Finally, putting down a deposit shows both the property seller and bond lender that you’re committed to the purchase, improving your chances of having your offer accepted.

While we are seeing an increase in 100% home loans, we still strongly encourage prospective buyers to save up for and put down a deposit. Your future self will thank you, and by saving up and performing these calculations, you’ve proven to yourself and to your lender that you are truly able to afford to purchase a home.

Rhys Dyer is the chief executive officer at ooba Home Loans.