A house is probably the most expensive asset that most people will invest in. However, because very, very few South Africans can afford to buy a house cash, the repayments are structured into affordable, monthly payments over a term of about 20 years.
But while most home buyers factor these monthly repayments into their budgets, they don’t always look at the value of the home loan over the full term of the repayment period. Because of the interest rate, and the term of the loan, you can end up paying back more than double what the house was sold to you for. In fact, most financial institutions structure the repayment in such a way that the first few years of your bond are spent paying for just the interest owed, and not the loan itself.
Using the BetterBond mortgage calculator shows that a house for R600 000, bought with a 100% bond, paid off at R5,206.00 every month over a 20-year period will actually result in a total repayment amount of 1,249,665. That’s more than double the amount the house was sold to you for!
However, there are ways that you can reduce the term of your home loan and the total you pay on the loan. Remember, a little preparation can go a long way when it comes to making massive investments like buying a house.
Find a lower interest rate
It almost goes without saying that the cause for the inflated total amount at the end of your loan term is directly related to the interest rate. It pays to shop around for the lowest possible interest rate on your home loan. This is something you can rely on a bond originator to help you with.
See our post on What a Difference a Rate Makes to see how your interest rate affects your repayments:
Save up for the deposit
Buying a house is a decision that you’re unlikely to make on a whim, which is why you should use your pre-planning period to your advantage by saving up for as much of a deposit as you can afford to. If you can put down as little as R20 000 upfront, you can reduce the monthly repayments on your loan to just R5,033.37 and the overall loan amount to 1,208,009.
It’s clear to see that the more you can afford up front, the less you’ll have to budget for in the long run.
See our post on Saving Money on Household expenses for some ideas on how to accumulate a decent deposit:
Put in the extra every month
It sounds counter intuitive, but when it comes to paying off your home loan, paying more means saving more. Try to pay as much as you can afford to every month into your bond, this means you’ll pay your loan off faster, and ultimately pay less for the overall loan amount. Even as little as an extra R200 a month can make all the difference.
If you find yourself at the receiving end of an unexpected financial windfall, like a tax rebate or a performance bonus from work, you should also consider paying this into your bond as a kind of ‘belated deposit’. It means that you won’t be able to enjoy that money in the short term, but the value of your debt will substantially be reduced in the long term.
Buying a holiday home is still seen as a luxury that most South Africans will never think about. Certain areas in South Africa have earned a reputation as providing expensive, inaccessible real estate to a largely international market. Expansive, sea-facing properties in locations like Caps Bay and Clifton easily fit this bill. But recently, there has been a decline in foreign investment, which has seen a drop in these sought after areas, and when one considers the option of renting the home out as holiday accommodation when it is not in use, as well as seeking out homes in lesser known local getaways, the prospect becomes all the more reasonable.
Here are a few less popular, and thus less expensive, areas around South Africa that you may want to consider planning your next holiday in- and perhaps your next house-hunting expedition.
- 1. Baviaanskloof- Eastern Cape
The Baviaans area encompasses the Baviaanskloof and the Karoo towns of Willowmore and Steytlerville in the Eastern Cape Province of South Africa. Known for small stock farming and for the richness of its endemic plant species, its interesting cultural heritage and its abundance of bird and animal life, the Baviaans area holds ample opportunity for outdoor recreation. It is also the gateway to the Baviaanskloof Wilderness Area, which is a World Heritage Site.
- 2. Langebaan- Western Cape
Almost year round sunshine, safe waters and reliable winds make Langebaan paradise for watersports lovers – particularly kite surfers, wind surfers, kayakers, yachtsmen, water skiers and fishermen. The tidal mud flats of the lagoon also attract thousands of migratory birds every year, and resident species are prolific and include greater and lesser flamingoes. Langebaan is an internationally acclaimed Ramsar Site for its importance as a wetland.
- 3. Yzerfontein—Western Cape
Yzerfontein is a quiet little seaside village about 85 km north of Cape Town on the West Coast Road. Famous for its carpet of wild flowers in spring, Yzerfontein has one of the most pristine beaches that spans 16 miles, all the way to the Postberg Nature Reserve within the West Coast National Park. It’s also a fantastic destination for whale watching.
- 4. Ladismith- Western Cape
Dominated by the impressive Towerkop (2198m), Ladismith is a relaxed Klein Karoo farming dorp, straddling the R62 on the way to Oudtshoorn. The small town boasts dramatic mountain scenery and wide jacaranda lined streets of carefully preserved historic, from simplified Georgian to rural Karoo.
- 5. Clarens- Eastern Free State
The village of Clarens is situated in the foothills of the Maluti Mountains in close proximity to the Golden Gate National Park and the mountain kingdom of Lesotho. Clarens is an artist’s haven, with tranquil village ambience combined with scenic views and a mild climate.
According to a new survey, four out of 10 high net worth property investors currently see property in London as a good bet, and foreign investment already accounts for 60% of prime property purchases in the city, to the tune of GBP1,2 billion a year.
Each of these purchases of course supports a chain of local enterprises, including cleaners, repairmen, security companies and, of course, estate agencies, and helps to create or keep much needed jobs in a sluggish economy. So it is no wonder that agents are up in arms about recent hikes in Stamp Duty (the UK equivalent of SA’s transfer duty) and a government threat of an annual “Mansion Tax” on properties worth over GBP2 million..
Their anger is summarised in an outburst by one top agency head, who said: “We are seeing a mindless attack on this sector from all sides of the political sphere. Prime property is a huge income generator for the country and taxing the owners out of town will do nothing for our long-term growth. It is nothing more than badly calculated political point-scoring.”
Another said the government moves were particularly worrisome in the light of the fact that the city was expecting a surge in purchases by wealthy French investors, ahead of the new 75% tax rate announced by president Francois Hollande on people with annual earnings of over 1 million euros.
It has also been pointed out that the UK already has a comparatively high tax take on property. Compared with the OECD average of 1,8% of GDP, property taxes in the UK contribute 4,2% of GDP and high-end property buyers already pay a disproportionate amount of that. The latest available figures show that the highest 1,6% of sales yielded 26% of all residential stamp duty land tax receipts in 2010, while the top 0,7% of housing stock held at death contributed 36% of inheritance tax receipts.
Quoted on www.estateagenttoday.co.za, the recent survey of wealthy foreign investors was conducted by international real estate firms Cluttons and VPC Asia Pacific and Bill Siegle, senior partner at Cluttons, said it provided a unique insight into the live investment intentions of high net worth individuals across the Middle East and Asia Pacific regions.
“And 43% of these highly mobile investors said the global financial crisis had had no impact on their view of London as a top investment target location.”
As it is, Fine & Country recently reported that its flagship Mayfair office in London has not sold one property to a UK buyer since 2005, and Jones Lang LaSalle says that 81% of buyers of new central London developments are from overseas, with over half being Asian.
Indeed, demand from Asia is so high that Winkworth recently opened a China desk at its Mayfair premises, and Knight Frank has just revealed that in the past 12 months, 59% of all prime central London lets have gone to international tenants.
Julian Lilley of Fine & Country’s Mayfair office says: “London is seen as a safe haven both from a security and a financial perspective. London’s property market seems to defy gravity. Whereas most of Europe and many parts of the UK are showing declines in excess of 10%, central London prices continue to rise, with some areas such as Mayfair and Knightsbridge showing increases of over 20% in the last year.”
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