Buying a house during recession

Posted On Monday, 10 December 2018 23:01 Published by
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It was recently announced that South Africa is in a technical recession, and although it sounds daunting to buy a house during a recession, it might be the perfect time to do so.

 NICOLA-WEIMAR

Nedbank senior economist, Nicky Weimar, says that “bargains can often be found in tough economic periods. House prices have fallen in real terms in recent times and this may have helped affordability for potential buyers who are financially fit and looking to enter the market or to upscale”. Buyers will need to take a realistic look at their financial situation and prospects before making a decision to buy a house. When faced with a recession, it is especially not a good time to take any additional financial risks.

Bruno Ching’andu, Head of Customer Strategy at Nedbank Home Loans, advises potential buyers to review your credit score, make provision for the upfront costs, decide on where you’d like to buy and look into the value of the properties.  Not only will this help you to determine whether you are financially ready to buy a home, but it will also prepare you for the process.

Your credit score

An important place to start in determining your financial readiness is to ensure that your credit profile is intact. Your credit score is provided by credit bureaus and used by most financial service providers as an important indicator of your credit standing (worthiness). . It indicates how much debt you have including your payment history. If your score is below a prescribed number, it may indicate that you have some work to do before embarking on the home-buying journey.  

Upfront costs

There are various upfront costs that you should consider and make provision for when buying a house.  Failure to do so could result in you acquiring additional debt, putting you under more financial strain.  It is advisable to save an amount of between 10% and 12% of the purchase price to cover the upfront costs.

Bond Initiation fee

The bond initiation fee is charged by the bank for processing the home loan application. The initiation fee will not exceed R6 037.

Bond registration costs

The bond registration fee is charged by the registering attorneys who get your bond registered and the title deed processed.  The amount varies based on your home loan amount and is based on tariffs recommended by the Law Society.

Transfer costs

The transfer costs are charged by the transferring attorneys to get ownership of your new home transferred from the previous owner to you, and to get the property registered in your name. The amount varies according to the purchase price of the property and the costs are based on tariffs recommended by the Law Society.

Transfer duty

The transfer duty is a government tax levied to transfer the property into your name and is payable to the transferring attorneys. It is the largest of the upfront costs. If you want to pay less in upfront costs, you may want to consider buying a house with a lower property value.

There is no transfer duty on properties under R900 000.

The table below shows an estimate of the associated costs for a R500 000 home loan:

Registration costs

Attorney bond registration fee

R10 680,00

Bond VAT

R1 602,00

Deeds office fee

R606,00

Total registration costs

R12 888,00

Transfer costs

Attorney transfer costs

R10 680,00

VAT on transfer costs

R1 602,00

Deeds office fee

R606,00

Transfer duty

R0,00

Total transfer costs

R12 888,00

Bond initiation fee

R6 037

Total costs

R31 813,00

The table below shows the estimate of fees for a R1 500 000 home loan:

Registration costs

Attorney bond registration fee

R21 705,00

Bond VAT

R3 255,75

Deeds office fee

R1 098,00

Total registration costs

R26 058,75

Transfer costs

Attorney transfer costs

R21 705,00

VAT on transfer costs

R3 255,75

Deeds office fee

R1 098,00

Transfer duty

R25 500,00

Total transfer costs

R51 558,75

Bond initiation fee

R6 037

Total costs

R83 654,50

Property location

The location of the property you are buying will have a direct impact on your everyday life. Consider easy access to transport hubs such as taxi ranks and bus and train stations. Also, fuel costs can start creeping up on you quickly, especially in our current economic climate, it is important that you take into account your travelling distance, traffic and access to main roads. You may also want to be close to schools and other amenities, but decide on these things before you start shopping for a house.

Property value

What you pay for a property is not always what it’s worth. That’s why it’s important to do your research about the factors involved in a real estate transaction before you buy a home. It is also important to note that the location of the property also determines the value growth. Independently verify the value of the property and trends in the suburb using property reports. Not only will this help to reassure you of the value and growth potential of the property, it also helps in the negotiation of the purchase price with the seller.

Did you know?

You can use the Nedbank Instant Bond Indicator anytime, anywhere, and get a home loan answer instantly. The Instant Bond Indicator lets you know the home loan amount you could qualify for by doing credit and affordability checks and listing the costs associated with the home loan. Clients who use the Instant Bond Indicator also get two free property reports if they qualify. 

Last modified on Monday, 10 December 2018 23:16

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