AA - Feb 2021

Author: Carl Koetzee
CEO of BetterBond
18 February 2021

It’s cheaper to buy than rent right now / 6 reasons why renters can own their own home

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

Another wonderful spin-off from the low interest rate is that 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. “With the premium being placed on lifestyle as so many of us are working from home, we are definitely seeing more buyers applying for bonds to secure their dream homes,” says Coetzee.

Recently BetterBond reported an 8.9% increase in the size of approved bonds in December, year-to-date, while the average deposit as a percentage of the purchase price dropped by 9.6%. For first-home buyers, the average approved bond amount increased by almost 10%, while the average deposit dropped by 13.5%. “Buyers are rushing to make the most of the low interest rate, as they can afford to buy 30% more than they could in January last year.”

Path to long-term wealth creation

Homeownership is a path to greater wealth, something that the many people flocking to make the most of the favourable lending environment understand. People are buying homes like never before – in fact, so many people applied for home loans that December 2020 was BetterBond’s best December in history. “When lockdown restrictions first eased in June 2020, we saw a massive spike in bond applications, specifically from first-home buyers.

“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. In December we had a 53% year-on-year growth in bond applications at a time when home buying activity is traditionally slower.”

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 South African Reserve Bank has 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, meaning there will still be ample opportunity to make the most of the favourable lending rate and 2021 will still be a good year to bond.

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,” says Coetzee. As part of their service, at no cost to the client, BetterBond applies to multiple banks (including the client’s own bank) and negotiates the best interest rate on the buyer’s behalf. The banks pay BetterBond a once-off commission to broker the deal on their behalf.

By approaching more than one bank, BetterBond is able to negotiate a lower interest rate of on average 0.61% for their clients; the difference between the best and the highest rate offered by the banks. The more banks approached, the more favourable the outcome as the banks compete to offer the best rate. For example a client who qualified for a prime interest rate of 7% on a R1 million bond, and was offered a further reduction of 0.61%, could end up saving almost R400 on monthly bond repayments and, over 20 years, close to R87 000.

“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, especially if they are making the switch from renting to owning,” says Coetzee.

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