The National Credit Act has made it difficult for potential home owners to get the loans they need to finance the purchase of a new property. This inability to get a loan makes it more difficult for these people to enter the housing market. Both first time buyers and the self-employed are particularly affected by the Act. Reports show that close to 50 percent of employed bond applicants are declined each month. An even more startling statistic is the 58 percent of self-employed applicants who are denied home loans.
A new concept is revolutionizing the South African property market. The introduction of a new Rent2Buy program in the area will provide buyers and sellers with an alternative way to conduct transactions. Meyer de Wall is the founder of Rent2Buy as well as a practicing attorney. According to De Wall, “We negotiate agreements between potential buyers and sellers whereby the buyer concludes a rental agreement with a seller with an option to purchase the property by a certain date and at an agreed price.”
Rent2Buy works by assuring the seller a set price for the property in the future. The buyer of the property pays rent in an amount that is approximately equal to the buyer’s future bond repayment. A unique aspect of the rent to buy transaction is that buyers are able to take immediate ownership of the property. Because they are taking over responsibility for the property, they are able to treat the home like it is their own and make changes accordingly. They will also be responsible for any rates, taxes, levies and maintenance.
“The idea is that the buyer uses the option period of the contract to prove his affordability and creditworthiness to the bank,” De Wall explains. “This way the buyer can eventually secure a loan to purchase the property. In addition to using the time to save for a deposit, he also shows he can afford the property and be disciplined by paying rent regularly and on time.”
Rent2Buy launched a home owner education programme with the goal of training and mentoring bond applicants and helping them succeed at securing a home loan. The My Budget Fitness programme will improve an applicant’s credit rating and put him on the path to being financially fit for a loan.
The programme was developed in association with Solly Molefe of Setsmol Training. “The programme is unique as it assigns personal budget trainers to applicants and uses innovative software to help home loan applicants track their progress and reach a financially fit state,” Molefe says. “Through mentorship, education and month-by-month guidance, home loan applicants reach affordability and clear their credit record as required under the National Credit Act.”
The My Budget Fitness Programme is available to anyone looking to secure a home loan, not just Rent2Buy customers. The hope is that allowing everyone access to this type of program will improve the ability of anyone seeking a home loan to achieve their goal of being financially fit to be approved for a bond.
The term lease to buy sounds a lot like rent to buy or rent to own. These three types of transactions are in fact quite different. In previous blog posts, we’ve defined both rent2buy and rent to own, and explained how these two processes differ. The following characteristics are what make lease to buy unique:
Lease. Lease to buy involves a monthly payment made over a long period of time. A typical amount of time for the lease period in this type of transaction is 2 or 3 years.
Final balloon payment. Lease to buy is a financial transaction with a final balloon payment. At the end of the lease, you make a balloon payment and then you own whatever you were leasing.
The main distinction that must be made between rent to buy and lease to buy is how each contract is resolved. With rent to buy, you can choose to buy or not to buy at the end of the rental contract. With lease to buy, you make a final balloon payment at the end of the lease period and you then own whatever you were leasing.