In a depressed market, such as the one we are currently in, many people ask themselves whether it is more financially prudent to buy their own home or to rent one instead.

“While the level of South Africans who now own their property has risen dramatically over the last decade, with the ever increasing cost of living coupled with high personal debt-to-income ratios, many South Africans are purposefully selling their homes in order to downgrade their lifestyle to more affordable levels,” says Adrian Goslett, CEO of RE/MAX of Southern Africa.

Goslett says that this has resulted in the need for many people to rent instead of buying a home. Rentals are also being fuelled by the fact that house prices remain relatively high when compared to earnings, the banks’ lending criteria remains strict and deposits are still required. “All these factors combined have meant that the move towards renting is gaining an ever increasing momentum.”

The great news for buy-to-let investors is that the ‘renting trend’ is one that is not only growing in South Africa, but also in other countries around the world. In fact, says Goslett, it is expected that in the UK, the percentage of people who will be renting instead of buying their homes will grow by as much as 20%, while in countries such as Germany for example, over two thirds of the population do not own their own home.

Although this rental trend may seem high, says Goslett, the reality is that in many cases, renting is much more affordable than buying. “Renting lowers your financial risk. In the current market, houses are difficult to sell and renting is much less of a risky proposal should you lose your job and suddenly have the need to downgrade to a less expensive property.

“Renting also gives you the freedom to be able to relocate to a new city for a job, and when you compare apples with apples, you could probably afford to rent a home equal to, if not better than what you could afford to buy.”

However, he says that the number one argument for renting lies in the fact that there are other kinds of investments that will offer a much higher return. “The theory goes like this – investing in property can be an expensive exercise when you take the costs involved in buying a property such as the transfer duty, bond registration fees and other legal fees, connection fees and moving fees. You also pay interest on a bond, and don’t forget the rates and taxes, the maintenance and insurance costs and the costs for the general upkeep of the property.

“Add all these expenses together, as well as the difference between the rent you would pay versus what you would have to spend on your monthly home loan instalment, and this would leave you with a sizeable amount of money.”

If you are disciplined enough to save and invest this money, says Goslett, it is estimated that you should be able to save enough money to buy a home cash over a period of 10 or so years, use it to reinvest in other avenues, or keep it as a nest egg for retirement purposes.

However, therein lies the crux of the matter – this kind of financial thesis is exclusively for the disciplined investor. “Unfortunately, most people do not have the required restraint to do this – if they have extra money, most people just end up increasing their living standards by buying more expensive cars, going on better holidays, or buying luxury goods for themselves or their home.”

Goslett says that the big argument for buying a home instead of renting one is that owning your own home is a forced kind of saving. “The truth is most South Africans do not save enough money for when they are older. However, being able to sell your home that you paid off over 20 years, and downsizing to a smaller dwelling will no doubt offer welcome financial relief when it is needed most. What would these people do if they had decided to rent 20 years ago?”

In order to benefit from buying property, Goslett advises that consumers get into the property market as early as possible. “The earlier you start, the better off you will be. Also, keep in mind that any 20-year bond repayment will come down dramatically in real terms as your salary increases with inflation (assuming there are no drastic changes in the interest rates). This means that even though you might have to tighten your belt to ensure you have enough money for the monthly payments when you initially start, they will become much more affordable as time goes on.”

Goslett says the key to successful property investment is to pay off your bond as soon as you can, live in your home for a minimum of five years so that you can recoup some of the initial costs, and to buy only what you can afford.

But, he says, there are both pros and cons to renting a property as well as for buying one. “Everyone has different criteria and levels of affordability.  Renting can allow you to suss out an area or complex to make sure you like it before you make a long term commitment, or to allow you time to save up for a deposit. On the other hand, the sooner you can start paying off your own bond, the better off you will be with an asset to your name that will certainly show good returns over the long term.”

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

What is Pension supported Housing Loans?

A Pension-supported Housing Loan is an alternative way to fund any aspect of one’s home. It is so named because the pension or provident fund benefit due to an employee can be used as security against the loan without eroding the retirement benefit. The amount borrowed is guaranteed against the fund – it doesn’t come out of it. This means that the employee’s pension or provident fund value is only affected in exceptional circumstances.

How do Pension-Supported housing loans work?

• Section 19(5) (a) of the Pension Funds Act empowers pension funds to furnish guarantees to secure housing loans granted to members by third parties such as Absa.
• Every month employees contribute to the fund for their retirement.
• The fund uses their savings to provide a loan guarantee to Absa.
• Money is deducted from their wages/salary every month to repay their
Pension-supported Housing Loan.
• The loan has to be repaid in full before normal retirement age or if your employee leaves the fund, thus with no negative effect on your retirement savings.
• The process starts with a Pension-supported Housing Loan Surety ship

Agreement between Absa and a registered retirement fund followed by the participating employer(s) agreeing to make payroll deductions.

Absa offers an advanced, tailor-made, dedicated scheme administration system with competitive interest rates and high value-added benefits for all your employees. This system ensures less impact on employer resources.

You’ll also get:
• A genuine home finance service for retirement fund members
• An optional credit life insurance policy to protect members’ fund benefits
• Professional assistance for members when they apply for loans
• Online application forms, making it easier to apply
• An optional protection against any form of fraudulent activities with verification mechanisms to ensure that all loans are used for housing purposes only.

Who needs pension supported loans?

Many people have difficulty obtaining a home loan involving a bond whilst other types of loans are usually too expensive or too small to use for housing purposes.

With a Pension-supported Housing Loan from Absa, your employees or members have another type of loan for housing purposes that is affordable, convenient and does not involve the time and costs of registering a bond.

The Pension Funds Act permits funds to furnish guarantees only as security for loans granted to members for housing purposes.
The following fall within the definition of housing purposes:

• Buying an existing home
• Redeeming an existing loan for housing purposes (i.e. settling your home loan or part thereof)
• Building a new home
• Improving an existing home

The property must be owned by the employee and must be used as the normal residence of the employee and/or his/her dependants.

ABSA Pension Supported Housing Loan (PSHL) Focus on 3 Core Elements:

The fund (involving managers, administrators, principal officers and trustees), employers (both in the private & public sector and unions) and the employees (all the fund members).
Absa PSHL develops trust and security between themselves and the fun administrators through solid, responsible lending and due diligence of the Absa systems set in place.
It also gives employers peace of mind by supplying a product that is convenient and trustworthy.
PSHL is hassle-free and has limited impact on company resources since the entire process from applications to approvals or declines, to payouts is all managed by Absa.

And finally, employees benefit the most. Not only do they get the chance to own a dream house, they also have financial security, controlled monthly payments, highly competitive interest rates and the backing of a major bank.

How can we make it easier?

Our structures are in place to make everything easier. From online applications to committed and reliable employees, we take the administration hassles out by offering employees affordable and realistic housing loans.

How Do You Keep Control

Fund managers, trustees and employers determine the maximum amount that can be borrowed as well as the percentage and payback terms, meaning you know exactly what to offer the employees in your company. We give you all the resources to do it your way.

For example, if an employee has a withdrawal benefit in the fund of R50 000 (net of income tax and other statutory deductions) and the fund has set a rule that the maximum any member can borrow is the equivalent of 70% of their withdrawal benefit, then the maximum the employee can borrow is R35 000. Absa will manage this on behalf of the fund.

The amount an employee will be able to borrow depends on how much savings they have available in the fund (their withdrawal benefit) as well as how much they can afford to repay every month and for how long.

Mortgage Plus will find the right deal for you. Guaranteed!

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za