Fundamental differences between renting and buying
Thomas Slabbert, Head of FNB home loans
Slabbert said that buying a home for the first time, however, is a big decision, and all aspects of this financial and long term commitment should be weighed-up carefully, including whether buying or renting will put you in a better financial position.
“There are many different aspects to take into account when considering buying. This is especially true in the affordable housing market where the majority of our customers are first time buyers,” said Slabbert. He shares some guidelines which outline the fundamental differences between renting and buying. How you are faring financially is possibly the most important factor when deciding to buy a home for the first time. Financially, there is a big difference between renting and buying. “And at FNB we encourage you to own your property and not pay somebody else’s bond,” stressed Slabbert. He said, buying a home attracts upfront costs, which need to be budgeted for. For example, an N$500,000 home, will attract N$8,000 in bond costs, which is the amount to register the bond with the Deeds Office. While there is no transfer duty on this amount, which is the tax owed to the Receiver of Revenue, there are still transfer costs of N$6,000, which are the fees paid to the conveyancing agency for their services. Added Slabbert, “If you secure an interest rate of 10.75 % which is the current base rate, your monthly repayments on an N$500,000 loan will be N$5,076 per month.
“However, these are not your only monthly costs,” said Slabbert. “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 the contents as well as the structure,” he added. He said, “over and above the bond, in this assumption, you should budget a little extra, to be safe, suggests FNB. Maintenance of the property is up to the home owaner. If you are buying make sure that you budget for ongoing maintenance, so set aside money every month for an unforeseen issue such as a water leak or if your place needs painting, in order to avoid going into debt to keep your house in good order.” Adding on Slabbert, “when renting a property, you will need to provide a deposit, which is normally a month’s rent, in addition to the rent for your first month. This deposit is used to cover any damage when you leave the unit or house. Once the deposit is paid, you will only be responsible for paying your rent and utility bills, electricity and water, on a monthly basis or as set out in your lease agreement.” “It is very important for tenants to also note that they will, in the majority of cases, be expected to have their household insurance in place. This is to cover their own personal goods that are in the leased property in the event of a burglary or a fire. However it is the home owner’s responsibility to have his or her own building insurance, which covers the actual structure of the flat,” said Slabbert. “There are also a few more factors that go into renting. 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 relatively short period.”
However, if you are renting, Slabbert suggested that you build up your financial position with the outlook to one day be a home owner. Assessing whether to buy or rent will never be an entirely straightforward decision,” said Slabbert. “If you are able to afford the bond and the additional monthly payments, as well as the money for added costs then you are probably in a good position to buy,” he added.
