Calculating What Your Dream Home Is Really Going to Cost

Regardless of what the global or local economy is doing, life goes on and that means that buyers continue to save up to buy their dream homes. “Unfortunately, the current struggling economy does have an impact on the residential property market and our agents are finding that the banks have started tightening their lending criteria”, says Bruce Swain, MD of Leapfrog Property Group, “These days 100% home loans are very rare, you’ll still find 90% mortgages, but banks are increasingly asking for 15%-20% deposits from buyers”.

According to the recent Property Barometer - FNB Area Value Band House Price Indices, the Lower Middle Income Areas (Average Price = R918,336) shows the most steady growth, “recording the 2nd highest average price increase of 5% in the 2nd quarter, an unchanged rate from the previous quarter”.

However, the report goes on to indicate that; “With interest rates rising, municipal rates and utilities tariffs rising sharply, and effective personal tax rates being ratcheted up in a “no growth” economy, it is not surprising to see the Middle and Upper Income Area Segments’ (R1.495m - R2.866m) average house price growth being the slowest at 3.9% and 4% respectively. Both of these segments’ price inflation rates have slowed from having had the 2 highest rates of the 4 segments back in 2014”. Swain concurs stating that, “The housing market is under pressure and as such it’s hardly surprising that banks are opting to exercise more caution when granting home loans. It is imperative for buyers to get a decent deposit together – the higher the deposit, the better the chances of getting approved”.

While each applicant’s situation is different and they might qualify for a larger home loan, it would seem that the requirement of a 20% deposit is fast becoming the norm and buyers would be wise to prepare for this when applying for pre-approval for a home loan.

A quick calculation reveals what sort of finance buyers need to have in place before they seriously start the house hunting process:

If a buyer were interested in a home with a purchase price of R1.2 million, they would need a 20% deposit of R240,000 and a bond of R960,000 to cover the difference.  In addition to the deposit of R240,000 the following costs will also apply:

Transfer costs (incl legal fees)            R40,050 (est)

Bond reg cost (incl legal fees)             R20,568 (est)

In total a buyer seeking to purchase a home at R1.2 million will need to have R300,618 on hand to secure a loan and to cover fees. This estimate naturally excludes moving costs and renovations.

“It’s a fact that costs are going up and we’re expecting that the Monetary Policy Committee will be increasing the repo rate once more this year as well.That being said everyone needs somewhere to live so buying makes sense, however, it is imperative that buyers factor in all of the costs of buying before signing an offer to purchase, if they want to avoid landing in financial difficulties down the road”, advises Swain.