Landsdowne Property Group says having a good credit record is a powerful tool for tenants, and it empowers them to negotiate more favourable lease terms.
In a competitive rental market, a strong credit history helps tenants secure quality properties while also paving the way for future financial opportunities, such as home or personal loans.
Jonathan Kohler, Founder and CEO of Landsdowne, said: “Rising living costs and prolonged high interest rates have significantly impacted tenants’ ability to afford rent, with many now spending as much on debt repayments as on rent.
"In our portfolio, we observed a decline in rental agreements last month, reflecting the strain on tenants’ financial situations.”
Last month, the Reserve Bank reduced interest rates by 25 basis points to 8% annually, leading to consumers now paying a prime rate of 11.50%.
While this is a positive development and suggests the possibility of further rate cuts, Kohler said that the benefits of lower interest rates will take time to reach financially constrained households.
The PayProp Rental Index for the second quarter of 2024 reveals that the average tenant spent 46.7% of their income on debt repayments and 30.3% on rent, leaving only 23.0% for other expenses.
A common guideline for rental affordability suggests that tenants should ideally spend no more than 30% of their income on rent.
“Increased tenants’ obligations result in downward pressure on the rental market, prompting savvy tenants to seek more affordable properties to maintain their creditworthiness,” said Kohler.
Kohler said without a credit history, it makes it challenging to secure home loans and rental properties, as creditors cannot assess an individual's payment history and affordability.
A credit record is typically established through various forms of credit, such as cellphone contracts, store accounts, or loans from banks.
When evaluating potential tenants, landlords and rental agents focus on net monthly income—the tenant's salary after taxes—to determine affordability, often relying on credit checks conducted by bureaus like TransUnion.
Credit bureaus calculate a credit score based on an individual’s payment history and overall debt. This score reflects how effectively one manages existing credit at the time of application.
According to TransUnion, a credit score is categorised as favourable (614-680), good (681-766), or excellent (767-999), with higher scores indicating better creditworthiness. Conversely, a poor or below-average score signals the need for improvement in one’s credit risk profile.
Better yet, there is simply no substitute for owning the roof over your head, says Samuel Seeff, chairman of the Seeff Property Group. It not only creates stability and a foundation upon which to build a life, but creates long-term wealth.
Investing in property should be at the top of your list if you are financially able to do so. Paying rent means you are paying off someone else’s property and making someone else rich. Instead, aspire to own your own home, he said.
You can do this by building up a good credit record and securing a home loan to enable you to purchase a property. Qualifying first-time buyers are also still able to secure full loan-to-value home loans, and some banks even offer costs on top of that.
Additionally, if you buy below R1.1 million, there is the added benefit of no transfer duty payable on the property. Buying into a new development also offers that benefit.
For previously disadvantaged individuals with a gross monthly household income of between R3,501 and R15,000 per month, there is also a government subsidy through the Finance Linked Individual Subsidy Programme (FLISP). It is subject to certain criteria and is administered through the banks.
It comprises a once-off payment which could be the deposit or reduce the overall loan amount required. The subsidy is available to a purchaser who has satisfied the qualifying criteria from a recognised bank and qualifies for a home loan.
If you are a first-time buyer, Seeff recommends that you always buy below your means and grow as your financial position improves, either by extending, or perhaps selling for a profit, and purchasing a bigger home, or in a better neighbourhood.
You should also focus on paying off your home loan faster to create more financial security. One way to do this is to not take the savings from the recent interest rate cut and to keep your monthly repayment unchanged. Another way is to invest any spare cash into your home loan.
Paying off your home loan will not only create more security but will save you a lot of money in the long run. By investing extra cash you could cut down the period by anything from one to five years or more, depending on how much extra you pay, and the period of your home loan.
For example, if you have a home loan of R950,000 over 20-years at the current rate of 11.5%, your monthly repayment would be around R10,131 per month. By paying just R300 extra per month, you could cut three years off the repayment period.
Comments