Growing numbers of millennials are taking to social media to share their disappointment after buying homes without doing all the proper research.
Some of the surprises include maintenance costs, levies and rates. But the biggest shock for many has been the increase in home loan repayments due to the high prime rate. One TikTok user reported that the cost of her loan more than doubled from R8 000 per month to R17 000.
Even though lenders are offering discounts to first-time buyers, the average concession of -0.52% is paltry when measured against the prime rate. Borrowers qualifying for the discounted rate would still pay around 11.25% interest on their loans.
Interest rates could well fall later this year, but for now are still likely to remain above medium-term averages.
Is renting a better way forward for first time buyers?
Prospective first-time buyers are delaying their purchases. According to Ooba Home Loans, they accounted for 46% of applications in Q1 2024, down 3% from a year earlier and 10% below its peak in 2020.
Rhys Dyer, CEO of Ooba Group, says many first-timers are using the delay to save money towards their home purchase. But would they be better off renting instead?
Data from the PayProp Rental Index shows that rental growth has been fairly modest since the pandemic, peaking at 4.6% year on year in the second half of 2023 before falling to 3.8% in Q1 2024. While homeowners saw their repayments double, tenantshave been well insulated from rising interest rates. In fact, rental payments have been falling as a percentage of income, according to the PayProp Rental Index – and tenant groups at all risk levels enjoyed more disposable income as a percentage in Q1 2024 than in Q1 2023.
Renting also offers more flexibility than homeownership and makes it easy to move for a new job or try out a new area, as many people did during the pandemic. While the stability offered by ownership is also attractive to first-time buyers, the risks of steep interest rate rises may encourage them to see renting as the safer option.
