The cost of living is increasing and with it, the ability to buy property. Impaired credit records and high levels of personal debt are now the norm, and 100% bond approvals are few and far between. First time buyers and self-employed individuals in particular are affected as evidenced by recent figures released by ooba, which indicate that nearly 46% of employed bond applicants are declined every month and 58% of self-employed applicants cannot secure home loans.
So what can aspirant property buyers do? One possible route is to engage with Rent2Buy. Founded by Meyer de Waal, a Director with Oosthuizen & Co Meyer de Waal Attorneys, Rent2Buy aims to provide aspirant buyers who cannot initially obtain bonds with the option to buy a home at the end of a set rental period.
How does it work?
Via Rent2Buy, a seller sells his property to a buyer who – at the time of application – cannot obtain a bond but may be able to qualify for a bond in the near future once he or she is able to meet a bank’s lending requirements. Prior to the lease expiring, the buyer will re-apply for a home loan. If successful, the buyer will be entitled to exercise the option to take full ownership of the property.
Says de Waal: “The idea is that the buyer uses the option time period of the contract to improve and eventually prove his affordability and creditworthiness to the banks. This way, the buyer can eventually secure a loan to purchase the property. In addition to using the time to save for a deposit, the buyer also shows he can afford the property and be disciplined by paying rent regularly and on time.”
In essence, Rent2Buy creates a win-win scenario. The seller is assured of a selling price for his property in the future and receives rent while the buyer takes up immediate occupation. Rent payable is typically approximately equal to the future bond repayment. The buyer also takes over payment of the rates, taxes, levies and maintenance which would apply if a bond had been granted. The purchase price is usually fixed for a one-year period but this varies from buyer to buyer.
To determine if a buyer qualifies for Rent2Buy, the applicant’s affordability and credit rating need to be assessed, as this will determine the length of the rental period necessary to gear up for a successful home loan application. De Waal says that buyers with judgments, who are under debt review, or who are black-listed are usually not accepted as these matters need to be settled first to ensure the best possible chance of securing a loan via the Rent2Buy platform.
According to de Waal, the concept has been developed over the past five years specifically for South Africa’s property market and has already met with great success. Rent2Buy also offers a linked budget fitness programme and an app which assists applicants and other interested parties with becoming financially fit for a home loan.