Low interest rates – coupled with bank lending reaching an all-time high and a notable shift in consumer buying behaviours – makes now the perfect time to buy a home, says Rhys Dyer, chief executive officer of home finance experts, Ooba Group.
“Despite lockdown and a turbulent economy, there has never been a better time to own a home. In fact, people are investing more in their homes than before,” Dyer said.
“Interestingly, our latest statistics for quarter 2 of 2021 indicate a 16.6% growth in the average purchase price of a home – R1,407,071 and R1,104,351 – up by 10.9% – for first-time buyers.”
This, he said, indicates that people are buying up. “They’re increasing their spend due to low-interest rates and the need for more space whilst working from home,” Dyer said.
Buying puts pressure on the rental market
As home buying continues its upward trajectory, Dyer noted that first-time homebuyers have put significant pressure on the rental market.
“We are seeing a positive uptake in home loans by first-time buyers – at an average age of 35. They’re now opting to terminate their lease agreements and invest in a home, and this is putting on pressure on landlords,” he said.
Dyer cited affordability, poor credit scores, lifestyle, and flexibility as some of the key drawbacks for those who have not yet taken the plunge. He said that regardless of the economic uncertainty, people are still investing in homes.
Weighing up the pros and cons of home buying
Dyer said that a monthly bond repayment on an amount of R1 million has dropped from R9,650 to R7,904. “Three rate cuts in quick succession have reduced the prime interest rate to 7.25%, the lowest level since 1973,” he said.
He highlights the pros of buying a home as follows:
- Reduced monthly repayments: If the interest rate goes down, so does your monthly home loan repayment. “On the other hand, a rental agreement is generally fixed so there is a chance that you’re paying inflated rental prices at this stage.”
- First-time buyers have the upper hand: “First-time buyers are privy to low-interest rates and zero-deposit home loans (in many cases).” Currently, 60% of Ooba Group’s first-time homebuyers acquire property without access to a deposit.
- Bargaining power: “The excess supply of homes on the market makes now a good time to start negotiating a great deal on your dream home.”
- The power of owning an asset: “Your property is likely to be an appreciating asset, especially over the long-term, and it could even be used as an investment property in the future. If the value of the property rises, the value of your personal wealth should also increase and you’re more likely to make a profit if you sell it.”
- Take charge: “Generally you can do anything you like with the decor and outdoor areas (subject to council or body corporate approval), and any improvements are likely to enhance your lifestyle and increase the value of your home.”
Some of the cons include:
- Added costs: When renting, maintenance and repairs are generally the responsibility of the landlord. When you buy a home, however, the onus is on you. It’s important that you set funds aside and maintain your home so that it holds (and increases) in value. “Also keep in mind costs such as levies and special levies, rates, taxes and insurance,” said Dyer.
- Repayments can fluctuate: “Your monthly home loan repayment is subject to interest rate hikes. When budgeting for a home, do the math over various interest rates and be sure to buy within your means.”
Dyer strongly recommends paying off your own home loan rather than someone else’s. “It’s recommended not fall into the comfort zone of renting, and for first-time buyers to take advantage of the current market conditions. For those who aren’t sure if they qualify for a home loan, work with industry experts to check your credit score, receive a pre-approval and ultimately apply for a home loan.”
“Finally, if you intend to buy-to-let, the income from rent can be used to pay off your home loan,” he said.