Making the leap from renting to buying a home? Do the sums. Simphiwe Madikizela, head of projects at FNB Housing Finance gives us some helpful advice.
Buying a home for the first time is a big decision, and all aspects of this long-term financial commitment should be carefully considered, including whether buying or renting will be better for you.
‘There are many different aspects to take into account when considering buying — this is especially true in the affordable housing market, where 96% of our customers are first-time buyers. This means that almost all our customers are making the leap from renting to buying for the first time,’ says Simphiwe.
Here are a few guidelines that outline the differences between renting and buying.
1. Finances when buying
How you’re faring financially is possibly the most important factor when deciding whether to buy a home.
Buying a home attracts upfront costs, which need to be budgeted for. For example, a R500 000 home, will attract R10 000 in bond costs, which is what it costs to register the bond with the Deeds Office. While there is no transfer duty on this amount (which is the tax owed to SARS), there are still transfer costs of R12 100, which are fees paid to a conveyancing agency for their services.
If you secure an interest rate of prime plus 1% (10.25% at the moment), your monthly repayments on a R500 000 bond will be R4 900.
‘However, these are not your only monthly costs,’ says Simphiwe. ‘As a home owner you are also responsible for rates and taxes, levies (if your home is in a complex), water and electricity, as well as household insurance for your home contents and the structure.’
Maintenance of a property can also be expensive, so set aside money every month for any unforeseen issues, such as leaks or painting — make sure you don’t go into debt to keep your house in good order.
2. Finances when renting
When renting a property, you’ll need to provide a deposit, which is normally one or two month’s rent, in addition to the rent for your first month. This deposit is used to cover any damage when you leave.
Once the deposit is paid, you’ll only be responsible for paying your rent and utility bills, if this is in your lease.
‘It is very important for renters to note that they will, in most cases, be expected to have their own household insurance. This will cover your own personal goods that are in the rented house in the event of a burglary or a fire. However the home owner should have their own building insurance, which covers the actual structure of building,’ says Simphiwe.
3. Assessing whether renting or buying is the best decision for you
‘This will never be a straightforward decision,’ says Simphiwe. ‘If you can afford the bond and the additional monthly payments as well as the money for added costs then you’re probably in a good position to buy.’
Furthermore, although the bond repayments may seem steep in the beginning, in most cases, after a few years your income position will be stronger, and towards the end of the 20-year period, the capital value of your property should have increased.
4. When will renting put you in a better financial position?
‘There are a few factors that go into renting,’ says Simphiwe. ‘One is your long-term position; do you move around a lot, are you planning on travelling or taking a break from your employment at any stage?’
Buying is a long-term commitment, and it isn’t an easy process to sell a house, which may actually put you on a financial back foot if you have to sell in a hurry.
However, if you’re renting, Simphiwe suggests you build up your financial position with the goal of one day being a home owner.
‘There are advantages to both renting and owning your own house. Make sure you consider all the different aspects when doing your sums and where you are in your life when making the decision,’ concludes Madikizela.