And here’s how your retirement fund can help you get a foot on the ladder
Banks don’t always approve a home loan for the full property price, but Shameer Chothia, consultant at Momentum Corporate, explains how your retirement savings can help bridge the gap. Although the world may have been flung into a Covid-19-induced economic recession, that hasn’t stopped some markets from thriving, despite the odds. Property is the perfect example of a market that has seen unexpected growth in a time of expected decline. In fact, Standard Bank, which accounts for more than a third of SA’s home loan market, reported that home loans granted in SA increased by 13% in 2020. Without denying the reality of the current global recession, markets do recover over time and, as property prices have come down, it definitely is a buyer’s market and property has remained an attractive investment.
Deputy CEO of Momentum Metropolitan Jeanette Marais said recently on DStv money show Geldhelde that property is the biggest investment most of us will ever make. She advises’ “Before investing in property, always speak to a qualified financial adviser to make sure this decision will benefit you on your journey to financial success.” But, with all these home loans being granted, many would-be property owners don’t realise that banks sometimes grant home loans for less than the listed property price. Chothia says that as with any big purchase, few of us have the reserves for a cash deposit and need to look at other possible avenues to access a loan. “One area many people overlook is a ‘pension-backed home loan’,” explains Chothia.
Some retirement funds offer pension-backed home loans to qualifying members who plan to use it for a primary residence. As a member, you can get access to a portion of your accumulated savings as a loan towards buying property or land, or to pay for transfer and bond registration costs. Chothia explains that once approved and paid out, you pay this loan back over an agreed period. Some leading umbrella funds offer this facility through the fund’s sponsor or insurer at even better rates than the banks. “A pension-backed home loan can also help existing homeowners who want to make improvements to their property to increase its value. It’s also a great time to fix up all the little bothers since many people are working and spending most of their time at home these days,” Chothia points out.
He adds that pension-backed home loans offer numerous advantages:
- No bond registration costs.
- Low initiation and monthly fees.
- Favourable interest rates.
- Instalments deducted directly from the member’s salary, with no debit order fees.
- Low risk of defaulting on the loan, as long as you’re employed and earning a salary.
To qualify for a pension-backed home loan, Chothia says you will go through the usual bank approval process, with the same requirements for supporting documentation. “You must be able to afford the monthly repayments, may not have any garnishee or administration orders against you, may not be under debt review or sequestration, and must have at least an acceptable credit score,” he explains. The size of the loan will vary from fund to fund, but Chothia says it will generally be a maximum of a specified percentage of the member’s withdrawal benefit.
But is it a good time to buy?
“We can take comfort in the fact that history has shown that markets recover,” says Chothia. He points to the 2008 financial crisis and other world economic crises, saying many property specialists have faith in the resilience of the South African property market and that it will ultimately recover. “People who bought property just after the 2008 crisis have had excellent returns on their investments. It’s just a matter of how long the current decrease in property value will last, but this could be the perfect time for buyers who are willing to wait out a few years.” Buying property is a big decision and a long-term commitment. Chothia highlights that many retirement funds have benefit counselling services to help you understand the pension-backed home loan benefits you have with your retirement fund.