Family homes require family support

Bill Rawson - calling for family support
Parents, relatives and even friends could be doing more to assist first time buyers gaining access to the first rung of the home-owning ladder, according to Bill Rawson, president of the Institute of Estate Agents, according to an article in the Sunday Tribune Property Guide.

His suggestion comes against the backdrop of affordability becoming a serious market entry barrier for many thousands of South Africa. Firstly in saving a large enough deposit and secondly, in qualifying for a loan large enough to purchase a property.

Gordon Battersby, managing director of Maxprop Franchises, who notes that family financial support has always been a traditional key factor in first-time ownership, says family underpinning is highly important in today’s market.
Quoting Absa’s house price figures, he points out that the average price of a small house in the first quarter of 2003 was R282 114, which required a monthly bond repayment fee of about R2 900. Since then the average price for a small house in the first quarter of this year has soared by 93 percent to R545 707 necessitating a monthly servicing fee of about R5 460.

Banks lending criteria, according to Battersby, is normally based on the monthly repayment not exceeding 30 percent of the borrowers monthly income. This meant today’s buyer required to earn in the region of R18 000 a month.

In the case of working married couples the banks based their home loan lending on combined incomes, but the reality was that properties within this price lending range were small apartments or townhouses and not always close to work. Accessibility to ownership was being further hampered by the still uninterrupted growth in house prices, which was being anticipated at around 12 percent for this year.

A common trait against parents supporting home loans, according to Rawson, was their perception that young people lacked sufficient responsibility to the commitment. “But in my experience if we help them buy an apartment or a small home they inevitably become proud owners prepared to work on their properties far more assiduously than most of their elders.”

Rawson says where a family member does not wish - or cannot afford - actually to put down a deposit for their offspring or relatives, they can still make the purchase possible by standing surety.

“The risk here is often not great because if the mortgage payer does find it impossible to continue his payments, the surety signer can usually arrange to take over the property in his own name.”

Mark Beckett, CEO of mortgage originator, Bond Choice, also supports the standing of surety ship, but says parents should enter into such contracts with their eyes wide open fully understand their legal liability.

With house prices having compounded annually by more than 20 percent over the past five years Beckett agrees it has become extremely difficult for most first time buyers to enter the market. Bond Choice regularly handles applications with their successfully outcome only made possible by family intervention.

If older people do not assist in this way, Rawson says, younger South African middle class people could find themselves having to wait far too long to become homeowners. This, he said, would mean them missing out on the excellent capital growth still being achieved in residential property and that, which would be “regrettable”.
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