NOMPU SIZIBA: In our property feature today we take a look at the attractiveness of the residential property market, particularly for younger, first-time buyer types. Bond originators BetterBond argue that now is the ideal time for first-time buyers to come on the scene. Of course, the latest 25-basis-point decrease in interest rates should add to a better environment for buying property.
Well, to give us a sense of what’s happening across the domestic property market, and to be attuned to it when making a decision to purchase a property, I’m joined on the line by Stephen Whitcombe, who is the national sales manager at BetterBond. Thanks very much, Stephen, for joining us. Why, in your view, is it a good time for first-time buyers in particular to consider purchasing a property?
STEPHEN WHITCOMBE: A very, very good question. At the moment first-time buyers account for roughly 40% of the registrations at the Deeds Office. So 40% of new applications coming in via BetterBond are for first-time buyers. I think currently the interest rate is almost the lowest in the last 15 years – also with the banks’ appetite to lend in that space. Currently banks are considering up to 105% loans across the board, and first-time buyers should take advantage of that.
NOMPU SIZIBA: Absolutely. In South African terms, it is said that we are in a low interest-rate environment, and of course we recently got more relief from the Reserve Bank by way of the 25-basis-point cut. Presumably this is the factor that makes buying a property even more appealing.
STEPHEN WHITCOMBE: I think it does. I actually have some stats – I had a feeling you would ask a question like this. If you look in the last 15 years, you’ll know that is August of 1998, the interest rate was at a staggering 25.5%; in those times we wouldn’t be recommending people to buy. But in these times – when the prime rate is around 9.75%, with the repo rate down to 6.25% from 6.5% – now is the time to buy.
If you look at the past 15 years, as well, the lowest prime lending rate was at 8.5% – this was in July 2012. So we are not far off from seeing some of the best interest rates in 15 years in the country.
NOMPU SIZIBA: Yes. As people decide to purchase a property, there is always the question – should I get a fixed or flexible interest rate on the mortgage loan? What factors would one need to consider on this issue?
STEPHEN WHITCOMBE: Firstly, from a fixed-rate point of view, you should always be aware, when buying a property and considering a fixed rate, that banks will generally charge a fixed rate of prime-plus-2%. Always bear in mind, depending on the term you are willing to consider, unless you expect rates to go up, it’s unlikely that you could see a financial benefit after the term that you fix it for.
Right now, prime is 9.75%, so I would rather suggest that we stick with the variable. After you see any movement in the interest rate, with the MPC meeting coming up in the near future, then possibly contact your bank to consider a fixed rate, but bear mind again it’s generally at the prime lending rate plus 2%.
NOMPU SIZIBA: Of course, buying a property is only one part of a number of responsibilities that come with it, so people should be under no illusions. What are some of the key factors that young buyers need to consider as they undertake that responsibility?
I think for any young buyers specifically who are entering the property market, it’s critical that they’ve been able to manage their current debt and the repayment of their debt successfully over the past 12 months. So for anyone who has currently got any form of financial or retail debt – specifically the younger generation who may have recently taken up that debt – it is critical that they maintain those repayments. The one thing banks will definitely do is look at whether or not an applicant has the ability to repay not only their current debt, but all future debt in the form of a home-loan repayment.
NOMPU SIZIBA: Just overall, I’m sure there are some young people who are thinking they can’t afford a property. A lot of people don’t earn that much money, so they will be asking themselves about that issue of affordability. What do you say around that?
STEPHEN WHITCOMBE: Well, affordability is critical in the assessment of a home-loan application when we submit it to the banks on the applicant’s behalf. The banks will critically go into detail around what they [the applicants] declare is the income, and what they declare as their expenses, and the bank will be able to determine whether or not affordability is sufficient to cover the repayment on the loan the applicants are looking for.
Since the introduction of the National Credit Act several years ago, banks are obliged to act in terms of responsible lending. So it’s important for the banks to understand that applicants applying for a home loan are able to afford the bond repayment that they are applying for.
NOMPU SIZIBA: I suppose if affordability is an issue for some people, but they really want to get their foot on the property ladder, there is no harm considering going halves with somebody that they trust, even if it’s not a romantic or a marital relationship, just to get their foot on that ladder.
STEPHEN WHITCOMBE: One hundred percent. It’s normal for us to receive applications where there are multiple applicants. Ideally you would want to go into a relationship like that, and I call it a relationship because it is a 20-year term that people will more than likely get their bond finance over. You want to be sure that with the people you are going into business with – let’s call it business – it’s a relationship that you know will last for as long as one plans on keeping the property.
But there is no harm. Friends can come together, family members can come together, support each other’s income, double up on their income and apply for a home loan.
NOMPU SIZIBA: Our thanks to BetterBond’s Stephen Whitcombe.