Property buying 101 | 100% home loans, access bonds, repo rates – a guide for the first-time buyer

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Here's the A to B guide of property purchasing lingo.
Here's the A to B guide of property purchasing lingo.
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The pandemic has been the greatest tragedy of our time, but it wasn’t all doom and gloom for those who managed to hold on to employment, keep businesses going or start new ventures.

Life had to continue somehow and as the repo rate dipped, making home loans a more tantalising prospect for first-time buyers, many people who had never thought they could afford to buy property found themselves being approved for home loans.

“The reduction of interest rates to historical lows, resulted in a rise in the number of applications and approvals,” says Mfundo Mabaso, FNB Home Finance Growth Head. “We saw more first-time home buyers and younger buyers enter the market as a result of the low interest rate.”

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When the repo rate allows consumers to borrow at lower rates, it’s expected that property purchases will be highest in the two provinces with the greatest buying power, Gauteng and Western Cape. But the Eastern Cape also saw a surprising rise in applications for home loans, according to Mabaso.

"Our estimates show that buying activity increased the most in the Western Cape and Gauteng, two provinces with the most buying power. Interestingly, Eastern Cape also saw decent activity," he says.

"Buying activity came in two waves: the first commenced immediately after the lifting of Level 5 lockdown restrictions in [the second half of] 2020. This was predominantly driven by younger buyers (<35yrs), most of whom were participating in the market for the first time. Our estimates show an increase of around 15% during this time. This wave faded in 4Q20 (fourth quarter of 2020).

"The second wave, which commenced around [the second quarter of 2021] was more driven by older, repeat buyers, presumably buying investment/holiday properties or just upgrading to bigger properties to facilitate work from home. These buyers tend to be less sensitive to interest rate hikes."

Based on their individual credit risk profiles, some of these clients were offered 100% loans, while others got 100% plus, which covers the purchase price of the house and other fees, excluding the estate agent's fee.

Credit profile, repo rate, bonds . . . When you buy your first property, the paperwork and jargon comes at you thick and fast and, unless you have a lawyer or real estate agent patient enough to decode it all for you, it feels like you've landed in country where people speak a new language.

For the property buying newbies, here's a glossary of both financial and legal terms you'll come across during the home purchasing process.

THE FINANCIAL ASPECTS

  • Mortgage

A legal agreement between you and a bank, credit provider or building society for them to lend you money with interest in exchange for keeping the title deed of your property as the debtor in their possession as security until full payment of the debt. 

  • Repo rate

The rate at which the central bank of a country, for example, the South African Reserve Bank, lends money to commercial banks in the event of the short-fall funds. It is used by the monetary authorities to control inflation.

  • Access bond

The type of home loan that allows borrowers who have paid extra money into their bond to withdraw the extra money should they need. It allows the homeowners to pay any surplus funds they have into their home loan account.

  • Credit profile

This is a snapshot of your financial history, which includes your credit score – the rating given to you based on the number of credit agreements you have, your payments history and other factors.

  • Estate agent’s commission

These are payments made directly to real estate brokers for services rendered in the sale or purchase of property

  • Transfer duty

Refers to a tax levied on the value of any property acquired by any person in a way of transactions.

  • Transfer fees

For each transaction of the transfer of property, a fee is payable to the attorney during the process. In other words, these are the fees paid to a transferring attorney, appointed by a property seller to transfer ownership to the buyer.

  • Pro forma costs

This refers to the costs you pay the transfer attorneys for their fees, including deed's offices searches, postage and petties.

  • Rates clearance certificate

This is the certificate issued by the relevant local authority on application by conveyancer to transfer a property. It certifies that there is no current outstanding debt due by the seller on the property.

  • Bond costs

They are a once-off fee that you pay before the bond is registered. The bank hires a conveyancing attorney to register your bond after the home loan is granted, the registration process usually takes six to eight weeks.

THE LEGAL ASPECTS

  • Conveyancers

This is an attorney who has specialized in the preparations of deeds and documents which by law are registerable in the Deeds Registry. They are responsible for ensuring that necessary financial arrangements have been made for transactions.

  • Title deed

When buying a home, you also buy a title deed. This is the document constituting evidence of a right to the ownership of the property. Anyone who purchases a home will need to have the title deed transferred into their names as the owner. The bank keeps the original as security for a home loan until it's been paid off.

  • Transfer documents

They refer to a purchase agreement creating a binding arrangement to effect the change in control. During this step, a transferring attorney will prepare the transfer documents to be signed by the seller and the purchaser.

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  • Lodgement

This is one of the last steps in the property purchase process, when the respective lawyers submit the transfer, new bond and cancellation bond documents to the deeds office.

  • Registration

It takes place with the conveyancer and registrar of deeds present. This is when the transfer of the property is registered in the purchaser’s name.

  • Homeowners’ association certificate

The certificate is designed to protect buyers and landers based on the current status of a particular area. The certification provides the buyer with all the information about the Home Owners' Association involved with the property the person is acquiring.

What do you pay for as the buyer?

The seller is responsible for paying the bond cancellation costs. As the buyer, you will pay for the bond attorneys, postage and petties, the deed’s office fee and a deed’s search fee which is conducted by the bond attorney. You also pay the transfer attorneys' costs, including their deed's search fee, electronic facilitation costs, and then there’s transfer duty, which is paid to Sars for a property worth more than R1 000 000.

Here is an illustration of what a breakdown of your bond and transfer costs may look like:

  • Purchase price: R1 100 000
  • Home loan amount: R1 100 00
  • Total bond and transfer costs: R65 486

Bond registration cost breakdown: R33 842

  • Bond registration costs (incl. VAT): R24 621
  • Bank initiation fee (incl. VAT)*: R6 037 (this varies, check with bond attorney)
  • Deeds office levy***: R1 283
  • Postage, petties and other application fees (incl. VAT): R1 900

Property transfer cost breakdown: R31 644

  • Property transfer costs (incl. VAT): R24 621
  • Deeds office levy***:R1 283
  • Transfer duty**: R3 000
  • Postage, petties and other application fees (incl. VAT): R2 740

Costs are effective as of May 2021

This is a once-off fee charged by the banks to open a loan account. This fee applies to natural persons.

** This is a government tax on the transfer of property title.

*** Non-VATable.

Source: Property24.com. See disclaimer here

Additional reporting by Thando Ndabezitha

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