Can't get a home loan? Then Rent-to-Buy!

So many South Africans can simply not get a home loan, because they do not have a 15% deposit as required by the banks, nor enough further savings over and above this to cover the transfer duty and bond costs that have to be paid out-of-pocket when buying a home. 

Others have impaired credit records that exclude them from obtaining home loan finance, while some are considered high risk by the banks because they already have extensive credit commitments and lack sufficient affordability.

"If you cannot obtain a home loan from the banks, don't simply give up on your dreams of owning your own home," says Meyer de Waal of Oosthuizen & Co Meyer de Waal Attorneys. "While it requires a slightly longer-term strategy, there is an alternative approach: Rent-to-Buy."

De Waal explains that before granting a home loan, banks will require a good credit rating, proof of affordability - that the prospective homeowner can pay the home loan instalments each month - and, most likely, a deposit. "If prospective homeowners cannot fulfil all of these requirements immediately, they will have to wait longer to own their own home, while they build up a good credit record, proof of affordability and a deposit. But this could mean losing the opportunity to buy the ideal property and/or paying more for a property a year or two down the line. Rent-to-Buy is the solution to this problem."

Essentially, the Rent-to-Buy approach involves the prospective homeowner securing the ideal property at today's market value by signing a rental agreement on the property for 12 or 24 months, with an option to buy the property at the end of the rental period at a purchase price fixed at the commencement of the agreement. During the rental period, the prospective homeowner pays a rental that is slightly higher than the average market-related rental and equivalent to the monthly instalments on a bond for the property. This allows the prospective homeowner to build up proof of affordability over the rental period, as well as time (6 - 24 months) to rehabilitate and maintain a solid credit record. Furthermore, a portion of the additional rental can be credited to the buyer on transfer to be used as a deposit when the property is purchased at the end of the rental period.

As such, the benefits for buyers include taking immediate occupation of their dream home and securing the property at a purchase price based on today's buyers' market, without the immediate upfront requirements of a deposit, bond approval and payment of transfer duties, legal costs and bond registration costs. While the buyer is occupying the property, he/she has the time to build up the deposit, a solid credit record and proof of affordability.

The seller benefits as the buyer assumes responsibility for the levies, rates and taxes, and maintenance, and receives an above-average rental income, which can be insured through the unique Rent-to-Buy insurance product to ensure the rental is received in full and on time each month and to cover the costs of recovering outstanding rentals or evictions.

"The Rent-to-Buy concept will help prospective home buyers who cannot obtain a bond now to make their homeownership dreams come true, while also relieving distressed or keen sellers from the financial responsibilities involved in owning a property," concludes de Waal. "It is a win-win situation for all involved and a practical alternative for those who have found their dream home but risk losing the opportunity because they cannot get a bond approval immediately."

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    • 20 Jun 2018
      The average size of bond granted in SA has grown 7,7% in the past 12 months to R934 000, according to BetterBond, the country’s biggest bond originator.
    • 19 Jun 2018
      In the current market, letting out a property can be a good option as rental demand remains strong, especially in the northern suburbs of Johannesburg. This is according to Chris Renecle, MD of Renprop. However he says that before homeowners let their property out, there are five key points they should make sure are covered before they market the property for rent and sign any lease agreements.
    • 19 Jun 2018
      The Capetonian dream is to live by the ocean with the iconic mountain making an appearance somewhere in the horizon. But, that dream comes with a hefty price tag that many simply cannot afford. But, should you venture some kilometres out of the city centre, entirely new realms of beachside bliss await you …
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us