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Tired of renting? Here’s how you can get out of the ‘Rent Trap’

Many millennials and Gen Z'ers have long ago abandoned the prospect of homeownership. But we’re here to tell them that homeownership at a young age is not only possible, but advisable. Here are some tips for those who want to escape the ‘rent trap’.

Rent trap

So you’ve found yourself in a situation where you appear destined to rent in perpetuity, while the prospect of homeownership grows increasingly distant. You are not alone. In fact, you are one of many who have fallen victim to what is commonly referred to as “the rent trap”.

The media consensus on millennials and Gen Z is that they long ago abandoned the prospect of home ownership, and resigned themselves to an eternity of rent. But we’re here to tell them that home ownership at a young age is not only possible, it’s advisable.

Why you need to escape the ‘rent trap’

It’s not just the price tag that puts many younger people off homeownership, it’s the commitment. Renting is associated with independence, the idea that you’re not stuck in one place; you can up and move anywhere at any time. Many also live in hope that their monthly income will one day be high enough for them to buy a home upfront.

But while the idea may sound nice, the reality is that rental prices are hard hit by inflation. If you don’t think ahead, you’ll end up paying more for rent over a period of time than you would have for a mortgage.

The key is to start early and start small. Buy a small property, such as a studio apartment, and live in that while you save up for a deposit on a larger property. Using this strategy, you can gradually work your way up the property ladder.

Here are some more handy tips for escaping the rent trap:

Start saving up for a deposit

A sizeable deposit will improve your chances of getting your home loan approved, while also lowering your monthly repayments on the loan. Of course, for younger homebuyers, scraping together the money for a deposit is the most difficult part of the process.

It will require some careful budgeting on your part. In many ways, saving up is a simple concept that is difficult to execute. Start by drawing up a list of your monthly expenses, and identifying the areas where you can cut back.

The good news for first-time buyers is that banks are increasingly approving home loans with lower deposits and also increasingly with no deposit required, with some banks even willing to finance the property transfer and bond registration costs.

Focus on your credit record

A good credit record is your most important asset when buying a property. Keeping a clean credit record goes back to the key principle of “starting small”. In other words, applying for credit on purchases with low monthly repayments. The credit you build up on such endeavors will help you in the long run.

According to Kay Geldenhuys, Head of Sales Fulfilment at ooba home loans, a good place to start would be store credit, cell phone accounts and bank loans – especially for other assets, such as a car. Being diligent about monthly repayments on your credit card will also significantly benefit your credit score in the long term.

Research government subsidies (and other support programmes aimed at first-time homebuyers)

Government offers a housing subsidy programme FLISP (Finance Linked Individual Subsidy Programme) to qualifying first-time homebuyers who have an income level of between R3 501 and R22 000 per month. According to the National Housing Finance Corporation, the once-off FLISP subsidy amount ranges between R27 960 and R121 626, depending on your income level. This amount can then be put toward the deposit or registration costs for a new property.

Home loan providers may also offer programmes geared toward first-time homebuyers. It’s important to do your research and see what kind of deals are available out there. For example, you could apply for a 100% home loan, with some home loan providers offering a cost inclusive home loan thereby eliminating the need to save up for either a deposit or for the transfer and bond registration costs. Home loan comparison service ooba receives a substantial amount of applications from clients with no access to a deposit, and more than eight out of ten of these applications have been successful due to the willingness of banks to grant 100% home loans. Of course, it’s important that you have a clean credit history, and banks view your application in a favourable light. The services of a reputable bond originator like ooba can give you the best chance of success.

Spend less on rent

Keeping your rent low will go a long way toward achieving home ownership. Remember, your aim is to start small, which means your first property purchase should be the kind of property you would normally be tempted to rent instead, such as a one-bedroom flat.

Luxury shouldn’t be the priority when renting; rather focus on finding somewhere comfortable, then put the money you might otherwise have spent on a more expensive rent toward the deposit on a property.

Identifying the properties you can afford will be critical to planning your first step onto the property ladder. South Africa’s leading home loan comparison service offers a range of home loan calculators that can help you plan. Start with ooba home loans’ free, online prequalification tool, the ooba home loans Bond Indicator. Then, when you’re ready, apply for a home loan.

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