Making the Move from Tenant to Homeowner

The average South African tenant still believes that he or she will never become a homeowner.

It is a natural belief to have because buying and owning a home is not cheap. Younger tenants are especially wary because they are concerned about affordability and they still believe that renting forms part of their future.

The truth, however, is completely different from these beliefs. There has never been a better time to make the shift from tenant to homeowner.

After five consecutive interest rate cuts, the conditions are perfect for first-time homebuyers to make that first move!

#1 - The prime interest rate explained

The prime lending rate is currently sitting at an all-time low of 7% which means that homebuyers can afford about 30% more than they could at the beginning of 2020.

More and more tenants are becoming homeowners because it is the best time to apply for a bond.

Statistics show that December 2020 saw a 53% increase in home sales and a 46% increase in bond applications in March 2021.

The trend is continuing throughout the year as more and more tenants are realizing their dreams and taking the step of owning their forever home. 

#2 - The current homeowner explained

It is not just the low repo rate contributing to the boost in sales, but also the demographics of the buyers.

People are buying cars and other assets at a much younger age.

The age of first-time homebuyers has also dropped with applicants being anywhere from 25-36 years old. It is the time where young people start earning good salaries and they feel secure enough to commit to paying off a bond. 

#3 - Homeowner affordability

First-time buyers are advised to check their credit score properly and to ensure that they know their affordability.

Someone earning R26,000 can qualify for a bond of just over R1 million at 7% prime interest. When the interest rate was 10% at the beginning of 2020, this would have meant that the loan amount would 'only' have been R800,000.

Homebuyers who have this type of information before applying for a loan have an advantage. It allows them to plan ahead and make sound financial choices before committing to a bond. 

#4 - Tips for new homeowners

When applying for a home loan, you must make sure that your paperwork is up-to-date and that your finances aren't in the red.

Financial institutions look at a wide range of aspects before they give you the green light. Your credit record is probably the most important thing that they consider. Several factors influence your credit record.

These include your debt repayment history and your current debt. It will also depend on the type of credits you have applied for and how often. The length of time your accounts have been open and the amount of available credit you are using also plays an important role. Financial institutions also check whether you have defaulted on any debt obligations.

If you have a poor credit score, you can easily boost it by paying off as many debts as you can, closing accounts you don't use, and avoiding going into even more debt. 

#5 - Final thoughts

Paying off a bond is a long-term commitment and it dictates your finances for at least twenty years of your life.

Knowing what you can afford and understanding the current lending environment will be the best thing to do during the application process. Tenants are encouraged to make the most of the current economic climate and to take the first step to become homeowners.

Homeownership is not as unaffordable as you think it is and it is always better to pay off your own bond than someone else's.