Looking to buy your dream home in South Africa? Getting a mortgage is a crucial step in making this a reality. However, the process may seem daunting, especially if you’re new to the country or unsure about how the system works.
This guide will walk you through everything you need to know about obtaining a mortgage in South Africa, including what types are available, how to apply, and what costs to expect. Let’s get started.
Mortgages in South Africa
Mortgages, also referred to as “bonds” or “housing bonds,” are a popular way to finance property purchases in South Africa. Approximately 60% of property buyers use a mortgage, and the country’s four major banks—Standard Bank, Absa, First National Bank (FNB), and Nedbank—are the primary lenders.
When buying a house with a mortgage, registering the property can take around 23 days and will cost approximately 8% of the property value due to various fees. South Africa provides accessible financing options for both locals and expats, though there are some additional requirements for foreign buyers.
Should You Buy Property in South Africa?
South Africa’s residential properties generally cost less than those in many other countries, making it an attractive option for buyers. However, overseas buyers usually need to pay a 50% deposit, which can be a significant upfront cost.
Before you decide to buy, it might be worth renting a property for six months to a year. This allows you to get acquainted with the local real estate market, neighborhoods, and hidden property costs such as transfer duties and legal fees.
Who Can Get a South African Mortgage?
One of the advantages of buying in South Africa is that foreigners can get a mortgage. There are no legal restrictions, but there are stricter rules for foreign buyers, such as:
- Obtaining a South African Reserve Bank (SARB) certificate to confirm you’re eligible.
- Providing a 50% down payment on the property’s value.
If you’re a permanent resident or have a valid work visa, you may qualify for more lenient lending criteria, allowing you to borrow up to 75% of the property’s value.
What Types of Mortgages Are Available in South Africa?
There are two main types of mortgages you can choose from in South Africa:
Fixed-Rate Mortgages
A fixed-rate mortgage locks in your interest rate for a set time, usually around five years. This makes it easier to budget since your repayments will stay the same during that period. However, they often come with higher interest rates compared to variable-rate mortgages.
Variable-Rate Mortgages
Variable-rate mortgages are the most common in South Africa. The interest rate on these loans fluctuates based on the South African Reserve Bank’s repo rate, which indirectly affects the prime lending rate set by banks. While rates have been favorable for years, recent inflation has led to higher interest rates.
Other Mortgage Types
Banks in South Africa also offer loans for:
- Holiday homes with equity loans.
- Buy-to-let investments where you purchase property to rent out.
- Commercial properties for businesses.
- Renovation loans for home improvements.
Are There Green Mortgage Schemes in South Africa?
Eco-conscious buyers will be pleased to know that some banks offer green mortgages or energy home loans.
These help you fund sustainable home improvements, like installing solar panels or improving energy efficiency. Green mortgages include incentives such as lower interest rates and long-term utility savings.
Banks offering green mortgages in South Africa include:
- Absa
- FNB
- Nedbank
- Standard Bank
What Are the Mortgage Rates in South Africa?
Mortgage rates in South Africa are tied to the prime lending rate, which is currently around 9% (as of July 2022).
Your specific rate will depend on your credit risk. A low-risk borrower with a good credit history might secure a rate close to the prime rate, while higher-risk candidates may pay an added margin of interest.
How Much Can You Borrow for a South African Mortgage?
The amount you can borrow depends on your income and credit history:
- Banks allow your monthly repayments to be up to 30% of your income.
- For joint applications, at least one applicant must earn a minimum of R25,000 a year with a clear credit record.
- Foreign buyers can borrow a maximum of 50% of the property value, so you’ll need to budget for a significant deposit.
Use an online mortgage calculator to estimate how much you can borrow. Tools like those provided by FNB or Ooba are a good starting point.
How to Apply for a Mortgage in South Africa
Step 1: Preliminary Approval
Before house shopping, get approval in principle (AIP) from your chosen bank. This provides a conditional agreement on how much you can borrow based on your current financial situation.
Step 2: Gather Documents
When applying for your mortgage, you’ll typically need:
- A SARB certificate for foreign buyers.
- Proof of residence or visa status (if applicable).
- Identification (passport or ID).
- Recent bank statements and proof of income.
Step 3: Choose a Lender
Consult banks or mortgage brokers to find the best rates and terms. Brokers like MortgageMax or SA Home Loans can simplify this process by comparing offers for you.
Step 4: Finalize Your Application
Once your offer on a property is accepted, submit your application. After the bank evaluates the property, they will grant your mortgage.
Mortgage Costs in South Africa
Buying a home involves more than just the price of the property. Here are a few additional costs to consider:
- Transfer duty: Paid on properties valued above R1 million.
- Bond registration fees: Typically 2.5% of the property value.
- Initiation fees: Charged by banks for setting up the mortgage, usually around 0.6% of the bond.
Use calculators like Ooba’s to gauge your total costs.
Is Mortgage Interest Taxable in South Africa?
For owner-occupied homes, there are no tax deductions for mortgages. However, for buy-to-let properties, you can offset mortgage interest and costs like letting agent fees and repairs when calculating rental income taxes.
Should You Purchase Home Insurance in South Africa?
Home insurance is often required by lenders in South Africa. Basic building insurance protects against structural damage, such as fires or floods, while optional contents insurance covers your belongings. Some banks also recommend mortgage protection insurance for added peace of mind.
Repaying and Refinancing Your Mortgage
Monthly payments are automatically debited from your account, and many lenders allow overpayments to shorten the loan term. If you wish to refinance, you can use your property’s equity to reduce payments or fund projects like renovations.
Final Thoughts: Prepare for Your Mortgage Application!
Buying a home in South Africa can be complex, but understanding the mortgage process will make you feel more confident as you prepare to take this exciting step. Whether you’re an expat or a local, proper planning, research, and expert consultation can help you secure the best deal possible.
If you’re ready to explore your options, start by using an online mortgage calculator and consult local mortgage brokers. Happy house hunting!