Affordable housing – you could own a property

With house prices escalating, you may be among the many South Africans who believe they will never afford a home of their own. However, low-cost housing options and housing subsidies are steadily making would-be property owners’ dreams a reality.

We consider South Africa’s affordable housing solutions, and how you can use these, and government subsidies, to secure a home of your own, regardless of income level.

Tip: Listen to our podcast on affordable housing here.

Do you qualify for a housing subsidy?

If you don’t earn enough money to qualify for a home loan, but earn too much to be eligible for Reconstruction and Development Programme (RDP) housing, options exist to help you buy a property.

The Financial Linked Individual Subsidy Programme (FLISP) can assist you if you earn between R3,501 and R22,000 a month, provided you meet the necessary criteria, according to Alistair Press, a sales agent at Virtual Realty.

These criteria are:

• You need to be a first-time home buyer,
• You must be over the age of 18,
• You must not have received a government housing subsidy before,
• You need to be a South African citizen or a permanent resident, and
• You must have a good credit score and meet affordability criteria.

He notes that the funds can be used as a deposit to cover a shortfall between your home loan and the purchase price, or they can be used to pay bond- and legal costs.

The subsidy can also be used to reduce your home loan, which means you’ll pay lower instalments.

The deadline for applying for the subsidy varies from one province to another, so familiarise yourself with the terms and conditions.

Buying with family or friends

By purchasing a property with family members or friends, you can reduce your personal financial burden. However, be aware that there are pitfalls attached to joint ownership. If the parties disagree, or one person defaults on payments, the experience may become stressful.

What’s worse is that you may become solely responsible for the loan repayments, and your credit record may become impaired if you can’t afford to pay.

Before you enter into an arrangement with family members or friends, each person should check for affordability and consider what they would do if disagreements were to arise.

Rent-to own agreements

Press says a rent-to-own arrangement is a great way to get a foot on the property ladder. It will suit you if you’re planning to buy your first home, but you're not quite ready to commit.

This option is particularly useful if you’re working in the informal sector, as you may not be able to receive a home loan through the bank. You need to earn R3,501 or less to apply, and if successful, a property will be assigned to you.

“After a few years, you will own your home, and if you want to upgrade later, you can sell to raise a deposit,” says Press.

After you’ve rented and occupied the property for seven years, it will be transferred into your name. However, during this time, you must have shown an ability to pay your rent and rates on time.

Once you purchase, rent falls away and you’ll receive the title deed to the property, says Press.

Should you consider buying now?

Press says some people are not keen to buy now because interest rates are high. However, because property prices go up every year, now may be the best time to buy.

Your credit score is a key factor in home loan qualification, so do check before lodging an application.

“If your credit score is not up to it, work on this, because it will determine the lending rate the bank is prepared to offer you,” says Press.

Although the repo rate - which is the rate at which the South African Reserve Bank lends to commercial banks - may go up again, there’s a chance we’re at the top of the interest rate cycle, and we may not see too many further increases.

“Housing is something everyone should have, so if you aspire to home ownership, it may be worth finding out if you pre-qualify,” he says.

Can you buy a home if you have no credit score?

Banks will not lend to you if there’s no record of how you manage debt. For this reason, it can be helpful to take out a SIM-only cell phone contract that offers, for example, 1GB of data.

If you set up a debit order, and the amount is deducted successfully each month, you will slowly build a good credit score.

Pre-qualification tips

Once your credit score is established, you can approach a bank or bond agent for home loan pre-qualification. Press offers the following tips:

• Make sure none of your debit orders have been returned in at least the past six months.
• Be sure to pay every account by the last day of each month.
• Don’t buy unnecessary items on credit, or apply for additional credit.
• Pay whatever you owe on your credit card every month.
• Don’t use your overdraft facility at the bank.
• Don’t hand over your bank card as collateral to a small lender, as this can destroy your credit score.

Press recommends you set a goal of pre-qualifying within six months to a year. He warns against taking out any loans during this period, as it’s difficult to buy (or rent) while you’re servicing debt. In addition, some lenders don’t comply with the national credit act, and can charge excessive interest.

Find out more about affordable housing

• For more information about FLISP, and application tips, visit www.flisp.co.za.
• To learn more about social housing, visit www.dhs.gov.za/content/programmes-and-subsidies.

Tip: If you’ve just bought a home, don’t forget to insure your brand-new asset.