Thanks to a historically low interest rate, almost half of all home loan applications came from first-time buyers in Q2 of 2021, according to home loan originator Ooba.
These numbers show that many South African are taking the plunge and getting into homeownership. There are several questions future homeowners should ask before approaching the bank for a home loan, including: “Is your credit score as ready as you are to buy your first home?”
Ooba also reported that, at the peak of demand in the third quarter of last year, renters made up 54% of all home loan applications. The South African Reserve Bank’s sustained rate cuts caused a record low prime interest rate of 7%, which meant many who were renting could suddenly afford to invest. This trend is continuing into 2021.
Ayanda Ndimande, strategic business development manager: retail credit at Sanlam, said: “Becoming a first-time homeowner is a massive decision for anyone and needs to be considered carefully. People must have all their ducks in a row and consider the wide variety of factors that could affect their credit scores before making their applications.”
Ooba’s data shows that 61% of homebuyers in August purchased properties without having access to a deposit, and bank approval rates on 100% bonds are sitting at 83%, which is 3% higher year-on-year.
While getting a loan might seem a more accessible option than ever before, it’s a big decision to make. One of the main things to consider is one’s credit score, the financial services firm said.
Boosting your credit score
As a rule, one needs a credit score of 600 and above to have a fair chance of having one’s home loan approved. “The higher your credit score, the more likely you are to get approved and the better your interest rate will be. Similarly, putting down a larger deposit will improve your chances of getting better terms.”
If you need to bolster your credit score or do not have one, Ndimande suggests the following:
- If you have no credit score, try opening some small retail accounts or a cell phone account, and pay it back on time and in full each month.
- Try to settle the outstanding debt as quickly as possible.
- Do not take on any more debt.
- Reduce spending wherever you can.
- Do not miss payments.
- Stay informed of what your credit score is.
“Taking on credit does not always have the best connotations, but that need not be the case. Credit may, at some time in your life, become necessary to help you enrich your life and reach your goals. If you make it part of sound financial planning, it can be incredibly useful,” said Ndimande.
Being able to pay the bond is not the only thing first-time homeowners will need to worry about. Purchasing a home comes with several other costs that prospective buyers need to be aware of. For example:
- Transfer and bond registration costs are things that will need to be budgeted for. These are variable costs linked to the purchase price of the property and the size of the bond registered amount. They can be pretty expensive, depending on several variables.
- The bank initiation fee is also a once-off administrative payment made to the bank that is prescribed by the National Credit Act and is currently R6,038.
“Buying a home does not have to be daunting. With the right amount of planning and financial education, it can be a very empowering process,” said Ndimande.