The Challenges of First Time Home Ownership

Private Property South Africa
Lea Jacobs

A shocking report that appeared in the UK's Guardian newspaper last week revealed that most younger people in that country believe Britain will become a nation of renters within the next generation.

The survey, conducted by a major banking chain in the UK, showed that 52 percent of the 8000 people interviewed thought that renting rather than buying would become the norm within the next generation. This is a marked increase from the 46 percent who were asked the same question in 2011. The paper also reported that official figures reflect that home ownership in both England and Wales has, in recent years, dropped off for the first time in almost a century.

One of the main obstacles to home ownership in the UK appears to be the higher deposits required by banks. On average, first time buyers are expected to down put a deposit of £27 000. At the current rate of exchange this equates to around R423 000.

Interestingly, a third of those polled, who were aged between 20 and 45 years, said they would only be prepared to save for three years to raise the cash for a deposit before they gave up.

While the amount required as a deposit by first time homeowners in South Africa may not be as much as that needed by their British counterparts, it can still prove to be a stumbling block for those trying to get their foot on the first rung of the property ladder. At this stage, most buyers (except of course those who qualify for 100 percent loans) are required to come up with roughly 17 percent of the purchase price. And it's not the only challenge facing South Africa’s first time buyers.

In January this year, Rudi Botha, CEO of BetterBond, noted that the weaker Rand, coupled with rising fuel and electricity prices, could put paid to the hopes of many wanting to become homeowners this year - unless they took steps now to counter the effect of these increases.

Exchange rates have gone haywire over the past month or so, leading to the Rand falling to a four-year low. This has increased fears of major hikes in the price of fuel in the near future.

"Some consumers are already taking on more debt just to cope with everyday expenses such as food, rent and school fees, and it is expected that wages and salaries will only rise at about half the rate of inflation this year. The big cost-of-living increases that are on the way could push already-stretched household budgets past breaking point, unless consumers start immediately to prepare for them by cutting their expenses to the bone and doing everything they can to reduce their debt load."

This, he says, is especially urgent for those who are anxious to become homeowners in the next year or two.

"The reason is that the banks don't only consider your income and credit record when deciding whether to approve a home loan. They also look closely at your regular monthly household expenses and your existing debt repayment commitments.They have to do this, in terms of the National Credit Act, to ensure that if you take on a monthly bond repayment commitment, it will not result in you being 'over-indebted' and ending up in financial trouble."

Unfortunately, Botha says, the fact is that less than half of those currently keen to buy property are likely to obtain a home loan now if they simply apply without doing some serious financial preparation first.

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