Much has been said about the “hidden” costs of buying a home, such as transfer duty, legal costs and bond registration fees, but in these tough times, home buyers also need to look ahead and budget for the additional costs they may face once they become homeowners.“Buyers need to know, for example, what the implications are of buying a property with a large garden as opposed to one on a smaller stand that will attract lower municipal rates and taxes – and may also save them time and money when it comes to upkeep,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.
Other budget items to consider are Home Owner’s Insurance (HOC) premiums, levies in sectional title complexes, water and electricity charges, cleaning costs and time and the cost of security measures such as fencing and burglar bars.
“And if you have a smaller home, the chances are that all of these costs will be lower than if you have a large property,” he says. “The levies in sectional title schemes, for example, are usually calculated according to the participation quota or PQ pertaining to each unit – so the larger the unit, the bigger your share of the overall levy bill will be.
“As for HOC premiums, these are calculated according to the current replacement value of a property, and will go up as that value increases. They are also not optional for anyone who has a bond.”
Big house, big bills
Similarly, says Rademeyer, it costs more to secure, clean and maintain a large property, and to provide water and electricity for a large household. “And with utility costs continuing to rise steeply, we have seen that many homeowners with bigger homes keep having to rethink their budgets and try to cut down on other items such as entertainment, transport and cell phone costs,” he says.
“Indeed, when one adds up all these homeownership costs, one can easily understand the current trend towards downscaling from large homes to smaller ones, and the growing preference among first-time buyers for apartments and townhouses.”
What is more, he says, in the current economic climate home buyers now also need to consider what their position would be if home values were to decline again as they did in 2008/09, and make their decisions accordingly.
“As FNB analyst John Loos noted recently, one of the biggest misconceptions about residential property is that house prices always go up. The fact is that even though this has only happened in SA three times in the past 48 years, it is a possibility and homebuyers need to ensure that, should they have to resell in a hurry, they will not owe more on their bond than the property is worth.
“In other words they need to think very carefully before committing to a no-deposit home loan and then possibly taking on even more debt to finance the transaction costs.”
D is for deposit
Rademeyer says that in the vast majority of cases, it is better for homebuyers to save up a sizeable deposit and then to buy a less expensive home than they had perhaps first envisioned. “This makes it easier to qualify for a home loan at a favourable rate, and gives them the financial leeway to pay off their bond faster if they wish or to cope with any future interest rate increases.
“And that in terms means that they are less likely to face the kind of financial pressure that might force them to sell when times are tough and it is really not advantageous to do so.”