Hidden cost warning for homebuyers in South Africa

Nedbank warned prospective homeowners to budget beyond monthly bond repayments, since purchasing a home involves significant upfront, ongoing and unexpected costs that can strain finances if not planned in advance.

“Buying a home can catch you and your budget off guard if you’re not properly prepared for the extra costs involved,” the bank said.

“This is often an unpleasant surprise for first-time buyers caught up in the thrill of the home-buying process.”

Some of these costs must be paid before the home can be registered in your name, while others are ongoing expenses after becoming a homeowner.

Nedbank stressed that South Africans who want to buy a home should prepare themselves so that they don’t incur additional debt by tapping into their overdraft or credit card when the time comes, or take out a personal loan.

“Rather, budget for these costs. You have to save up for a while before you start looking at houses or apply for a home loan,” the bank said.

When buying a house, the first concern is likely to be the monthly cost of paying the bond, the bank explained.

“This makes sense because your home is probably the biggest purchase you’ll make in your lifetime, and it comes with a long-term commitment of up to 20 years. But you also need to be prepared for some initial administrative costs,” it said.

These include the home loan initiation fee – a fixed fee of R6,037 – which is paid to the bank for processing the home loan application.

“Bond and transfer costs are the conveyancing or legal fees you will pay to the bond attorney appointed by the bank and the transferring attorney appointed by the property’s seller to transfer ownership to you,” the bank said.

“These costs vary according to the size of your home loan and the property purchase price. You can calculate an estimate of these by using our bond and transfer cost calculator.”

Moving and recurring monthly costs

“The conveyancing process of transferring a property into your name typically takes around 2 to 3 months, time you can spend planning your move,” Nedbank said.

“Moving your household contents to your new home is an unavoidable expense that could cost thousands of rand. The further you need to move, the higher the cost.”

The bank advised South Africans to start the process by searching online to find a reputable mover and obtaining quotes from at least three companies to compare prices and insurance coverage.

The bank also encouraged buyers to check online reviews and rankings of any companies that they’re considering.

“A cost many first-time buyers are not aware of is the possibility of paying occupational rent after you’ve moved in. It is levied and paid to the seller only if you move in before the property has been transferred into your name,” the bank said.

“If you urgently need to move in before the transfer process is completed and the seller allows you to, you’ll be living in a home that still belongs to the seller.”

However, this does not apply where the buyer only moves in once the property has been transferred to their name.

“Check with the estate agent whether this clause is included, and at what rate. The amount is typically around 1% of the property value,” the bank said.

After the moving and transfer process is complete, homeowners will face many ongoing costs associated with owning a house. These costs, Nedbank stressed, need to form part of the financial planning process.

“For instance, paying rates and taxes to your local authority. This monthly bill includes items like land taxes and charges for municipal services like refuse collection, electricity and water,” the bank said.

“An important note about your municipal bill is that you’ll have to pay a deposit upon moving in. This cost varies according to the local council’s own rules and will be based on the property’s past monthly costs.”

Homeowners will receive this money back when they sell the property. Importantly, buyers check with their estate agent or local council for how much they need to budget for the initial deposit.

Nedbank added that those moving into an apartment complex or security estate may also have to pay a deposit on their monthly levy.

The levy is used to cover the cost of security and maintenance of common areas and facilities, and is in addition to your utility bills, such as water and electricity.

Unforeseen maintenance and upgrades

Nedbank warned that unexpected expenses are the biggest threat to a homeowner’s budget. For this reason, buyers must take expert advice on the condition of a property before making the purchase.

They need to be aware of any maintenance issues or upgrades that require immediate attention. They should be especially vigilant for structural problems.

This includes issues such as electrical system problems, roof leakages, plumbing issues, cracks, mould, and damp.

“These are not only costly to repair, but should be pointed out to you by the seller or estate agent,” Nedbank said. “You must know what you’re buying and how much more you will need to spend – this will affect the offer you make.”

“If these defects were hidden from you and you only discover them after the sale, you can demand that the seller repair such problems, or pay for the repairs. But that’s a legal wrangle you can avoid by checking these issues beforehand.”

Even with no hidden defects, the buyer may want to upgrade a house immediately. For example, they may need to enhance security, change the locks, or repair defects that they were aware of but had budgeted for.

“That’s one of the reasons to buy a ‘fixer-upper’,” Nedbank said. “You can secure a bargain price because of acknowledged problems that need repairs, but still afford to tackle those basic repairs as soon as you occupy the property.”

“If you’re ‘flipping’ the house to sell it again quickly, you’ll also want to add touches to increase its value.”

Once the new home is in tip-top condition, budgeting to maintain it is simply part of the home-ownership journey, Nedbank noted.

“Structures and utilities that were fine when you bought the place can break down and need repair. But think of the cost of maintenance and upgrades as an investment in the value of your home,” the bank said.

“As long as you don’t overcapitalise on the property, you’ll see a return on that investment when you eventually decide to sell.”

Buyers also need to budget for homeowners’ insurance, a monthly premium that depends on the property’s value, the bank added.

This is a monthly premium that depends on the value of your property. Homeowner’s insurance covers a home if there is damage or loss, for example, fire.