All you need to know about buying property

2015-02-15 15:00

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According to the FNB Estate Agent Survey for the fourth quarter of 2014, there are a significant number of first-time home buyers on the market, accounting for an estimated 27% of total home buyers.

FNB property economist John Loos attributes this to a combination of high confidence in a low-interest environment and a measure of “buyer panic”, with a number of first-time buyers keen to become homeowners “before prices become unaffordable”.

A low interest rate environment means there appears to be a strong preference for buying homes rather than renting. The prime interest rate is currently 9.25%, which, combined with an increase in household disposable income, means buying a house is more “affordable” now than in previous years.

Samuel Seeff, the chairperson of Seeff, says a prospective buyer should remain cautious and budget carefully. When you are calculating the value of the home loan you can afford, take into account the possibility of future interest rate hikes, as well as increases in the cost of basic living and utility costs associated with home ownership.

Make sure you are house-hunting within the right affordability bracket. Banks calculate your affordability based on your disposable income after deductions and expenses. Your disposable income must be more than 30% of your gross monthly income for banks to approve a home loan. You can use an affordability calculator (such as to work out a realistic purchase amount.

Your credit history will be assessed by the bank to ensure that, when you’ve borrowed money, you’ve paid it back and your credit history is clear.

If you have saved up for a deposit, your position when applying for a home loan is much stronger. According to mortgage originator ooba, the average required deposit on a home loan over the last three months of 2014 was 14%.

If you are selling a property you currently own tobuy another one, then bear in mind you will not be able to put down a deposit immediately.

“In this case, you would usually provide a guarantee of the funds required for the deposit,” says Allison Dunbar of ooba.

You can consider renting for a short-term period of six months so that you can present a seller with a cash cheque for the deposit when you make an offer to purchase. Often a cash deposit will secure your offer – even if it is a low offer – while an offer to purchase subject to the sale of your current property does not carry as much weight with a seller.


Following the introduction of the National Credit Act, banks are hesitant to offer preapproval for home loan applications. However, you can still ask a bond originator to calculate the type of deal, bond amount and interest rate you could expect to be offered when you apply for your home loan. Note that this does not mean you will necessarily qualify for a home loan of this size, but it is intended to give you a ballpark figure of your affordability. Karen Karam, a regional sales manager for bond originator ooba, explains prequalification allows youto calculate what is affordable and to budget for additional costs, such as legal fees, transfer duties, bond registration fees, bank charges and insurance fees. “Ooba currently gets approval for 74% of the home loans it facilitates,” she says.


When you apply for a bond, you can opt to either have a fixed home loan interest rate or a variable interest rate. A fixed rate is usually a good option when interest rates are low, as it protects you against further interest rate increases. However, be aware that if you fix your interest rate, you are locked into that interest rate, even if the prime interest rate falls. For example, if you opt for a fixed interest rate of 10% and the prime interest rate falls to 6%, you will not be able to change the rate applicable to your home loan. The upside is that if the prime interest rate increases to more than 10%, you are protected from the hike. Fixed interest rates usually apply for different terms, ranging from one year to five.


Once you have moved into your new home, make sure you maintain good relations with your bank by making payments on time. Remember the bank will hold you accountable for your home loan until you have settled it and the ownership of the house has been transferred toyou.


Start saving a little each month towards an emergency fund for unexpected costs such as plumbing and general maintenance. An emergency fund will prevent a situation where you have to dip into the equity available in your home loan.


Spend a little each month to maintain your property. It is far easier on your pocket to pay a little for regular maintenance than to have to fork out a large sum of money for costly repairs.


Once you have identified a property you want tobuy, spend a little extra getting experts in to carry out an inspection before you sign an offer to purchase. This might cost a little more than you planned for initially, but it can save huge maintenance and repair costs in the long run. Jean-Marc Masson, the owner of Home Inspection Services in Johannesburg, says the purpose of a home inspection is to identify the condition of the home, especially defects or safety issues that would affect your decision tobuy. He says the most prevalent conditions his company finds are damp and structural problems. “Sometimes damp in the lower parts of the walls can be resolved by extending the drainpipe or increasing the slope around your house to drain water away from the foundation,” he says. A home inspection report basically makes you aware of any potential problems or repairs you may have to make in future. You may find a seller is willing to make the required repairs if there are significant problems, or you may decide the cost of future repairs outweighs the value of the property and will not suit your budget.


Steven Barker, head of home loans at Standard Bank, says buying a home needs careful planning and a check list to ensure it meets all your needs. When youbuy a home, consider the next five years – because buying and then reselling within a short period of time can be expensive and you are unlikely to recover your costs. Barker says that if you sell a property within a year of buying, your chances of getting more for it than you originally paid are slim. Expenses such as agent fees, transfer fees for another property purchased, moving and utility bills will also be incurred.

Factors you should consider when choosing a property include:

»Schools: If you have children or plan to start a family, look for a property close to a school district. This will reduce your travel time and petrol costs, and can influence whether your child is accepted at the school of your choice. Proximity to universities and colleges is also an important consideration if you have older children.

»Work: Living close to work will not only save time in terms of traffic, but save rands in terms of fuel and car maintenance. Before you put in an offer, drive to the house you are considering buying and time the morning and afternoon commute from work.

»Amenities: Ideally, you want to be relatively near a shopping centre for convenience. Also consider the public transport routes and accessibility of the property. Congestion may be a common problem, but choosing wisely will save you hours in traffic. Check the traffic flow in an area, as some areas have significantly more congestion than others.

»Security: Chat to the neighbours in the area about your security concerns. More often than not, they will be happy to give you their commentary. You should also drive through the area at night, over the weekend and during weekdays to ascertain what the area is like at different times of the week.

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