It almost always makes more sense to buy a home rather than rent, simply because being a tenant means giving away what you would have spent on housing anyway, without gaining anything in return.
So says Rudi Botha, CEO of bond originator BetterBond, who explains that by contrast, homeownership is the easiest way for young people, especially, to accumulate personal wealth.
“This occurs as the value of the property appreciates over a number of years and the size of the outstanding home loan decreases month by month.
“There are also several relatively easy ways to accelerate this process, such as paying an extra amount off your bond each month.
“You can also maximize the possibility of value appreciation by buying in an area where your target price is in the lower tier of current prices in that area. That way, your home will have less vulnerability during any downturn and the higher-priced homes will help pull yours up during ‘hot’ markets.”
There are those, he says, who believe that the real estate market is not yet at the bottom of its current cycle, and that they should wait for home prices to become even more negotiable than they are at the moment.
But even property experts can’t really ‘time’ the market like that with any degree of precision, because there are just so many factors to take into account, says Botha.
“The reaction to major economic or political events, improvements or declines in consumer and business confidence, interest rate increases or decreases, crime, employment, supply, demand, migration, urbanisation and densification vary literally from suburb to suburb, so consumers should rather set their own purchase agenda, buy as soon as they have the necessary funds and get started on building up the equity and creating wealth for themselves.”
Botha also says there is naturally some resistance to buying among those who know they are going to have to move again in a year or two, “and our advice to such consumers is indeed that it may be better to use this time to save up a substantial deposit for a home in their new location.
“However, those who are staying put should, we believe, be buying as soon as they can possibly afford to do so, because overall market conditions do favour buyers at the moment, in that there is still a surplus of stock for sale and that it is relatively easy to obtain a home loan.
“The banks are currently keen to lend to home buyers, as evidenced by the fact that we have been able to secure approval for more than 80% of the bond applications we submit for the past six months – and that almost two-thirds of applications are being converted now into formal bond grants.
He says BetterBond’s multiple-bank submission process ensures that it is able to negotiate the best available interest rate for every client – and in the process set them up to cut a substantial amount off the total cost of their home over the life of the bond.
“At the moment, we are finding that the average variation between the best and worst rate offered on an application is 0.5%, and on a loan of R1.5 million, for example, that could translate into more than R120 000 worth of interest saved over the 20-year lifetime of the loan, plus a total of about R6 000 a year off the home loan instalments.”
Original article here