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Should you buy your own home?
With interest rates climbing sharply, here’s what you should think about...
Buying your own home is often a decision that makes sound financial sense. Instead of paying rent, you can channel that money towards an asset of your own that appreciates in value over time, setting you on a journey towards wealth creation. But how do you judge the right time to get into the property market?
Rent or buy?
The traditional objection to renting a home is, ‘Why pay off your landlord’s home loan, when you could be paying off your own?’
And that is one of the big advantages of buying a house: instead of simply buying you a place to live, your monthly payments go towards owning an asset. You can renovate, upgrade or build on to that asset to increase its value in whatever way suits you.
But renting has its own advantages – especially if you aren’t sure you want to settle permanently in a particular area yet, or you foresee having to move quite often for your career. Renting makes relocation much simpler if you need to, and at the same time, costs like the maintenance of the property and rates are the landlord’s responsibility, not yours.
Buying becomes more attractive once you’ve decided you want to settle somewhere permanently, and you’re ready to begin building your wealth with fixed assets. Just remember that over and above the home loan repayments, there are other costs to be paid when you buy a property. Ongoing costs like insurance, rates and taxes (and levies, if you are living in an estate or complex) and property maintenance are a constant part of owning a home. Include all these costs in your budget when you’re deciding if you can afford to buy a house.
Property cycles
The property market moves in cycles, so property is more affordable at certain times than at others. It can depend on the current home loan interest rates, which affect the size of your monthly repayments. When rates are low, there are more buyers in the market searching for property since repayments are more affordable. But the laws of supply and demand mean that, with so many buyers looking for property, sellers can be choosy about which offers they accept – house prices may in fact rise, because buyers can afford bigger home loans than they would at a higher interest rate.
If you buy a property valued at less than R1.1 million, you don’t pay transfer duty
Conversely, when interest rates are high, fewer people can afford to get a home loan. The market drops, and with fewer offers being made, sellers may have to accept lower prices. As a prospective buyer, it’s important to understand where in the cycle the property market is, before taking the plunge. Get expert advice when evaluating the market.
An incentive for first-time buyers
Price might be another reason to consider buying a house. If you buy a property valued at less than R1.1 million, you don’t pay transfer duty, which is a tax levied on the value of the property and is paid to the South African Revenue Service.
For more information on upfront costs when buying a home, try our bond and transfer cost calculator. This could make taking that first step onto the property ladder more affordable for many.
In addition, first-time buyers who qualify can take advantage of the First Home Finance subsidy (previusly FLISP), a government subsidy that is paid to the bank or lending institution to reduce the monthly loan instalments, making homeownership more affordable. To qualify for the subsidy, your household needs to earn between R3,501 and R22,000 a month. For more information, visit our First Home finance subsidy page.
Nedbank makes first-time home ownership easier by offering a 105% home loan, up to R20,000 cash back and 50% discount on attorney bond registration fees to qualifying buyers. This will help you pay the other costs involved in buying a house.
Deciding whether to buy a house could be a matter of finding the right home, in the right location, in the right condition, for the right price.
Did you know that on average, Nedbank pays out around R1.8 million a month in cash back on home loans? In 2023 our cash back pay-outs on home loans were more than R20 million. For an affordable home loan tailored to your circumstances and value-added extras like up to R20,000 cash back and a 50% discount on your attorney bond registration fees, choose the bank that’s best for your money.
