If you rent a home but dream of owning your own, now is the ideal time to make the switch to becoming a homeowner. Many people who rent don’t realise they could actually qualify for a home loan. The current favourable lending environment is ideal for first-home buyers – read on to see why that could be you.
It’s cheaper to buy than to rent a home in 2021 – The prime lending rate – which affects how much you repay on your monthly bond instalments – dropped five times in a row last year, to a record 7% – the lowest it’s been in 55 years. This historic low means it’s now cheaper to buy a property than it is to rent one of the same value, says Carl Coetzee, CEO of BetterBond, SA’s largest bond origination company.
“The average monthly rental on a R1 million property is about R7 800. At a prime lending rate of 7%, the monthly bond repayment on the same property would be comparatively less at R7 753.” Of course, there are additional costs associated with owning a house, but there is also the benefit of having a fixed asset instead of paying off someone else’s bond each month.
You can afford 30% more now than you could in January last year – Buyers can afford up to 30% more than if they had applied for a bond a year ago. The resultant aspirational purchasing has meant buyers can afford a home in a better street or suburb, or perhaps one with more bedrooms or a bigger garden. For first-home buyers, the average approved bond amount increased by almost 10%, while the average deposit dropped by 13.5%.
You’ll be in good company – Home ownership is a path to greater wealth, something that the many people flocking to make the most of the favourable lending environment understand. “When lockdown restrictions first eased in June 2020, we saw a massive spike in bond applications, specifically from first-home buyers,” said BetterBond CEO, Carl Coetzee. “Initially we thought it was just pent-up demand, but the sustained bond activity shows that the lower interest rate was driving the robust recovery.”
It’s a buyer’s market – Property prices were already dropping before the start of the pandemic last year, and there is now an oversupply of stock. This means that the demand for homes is lower than supply and serious sellers need to ensure that properties are priced appropriately if they don’t want them to sit on the market. Buyers have more financial room to shop around, thanks to the lower prime lending rate, and they are able to apply for a bond on a home that may not have been able to afford at the beginning of 2020.
A favourable outlook – Interest rates will remain in the single digits – and probably below 8% – throughout 2021, says Coetzee. The chas indicated that there will be no repo cuts in the short term, and potentially two increases of only 25 basis points in the third quarter of this year.
You can get an even lower interest rate – “Buying a new home is one of the most important and significant purchases a person will make. So, it’s important to start the home-buying process with a realistic understanding of the amount needed to secure the required bond. Buying a home for the first time can be stressful, and having a bond agent helping you is one of the most powerful tools you will use in your search and your ultimate acquisition of a home. It gives many first-home – and other – potential homeowners enormous peace of mind,” concludes Coetzee.