Mortgages and home loans in South Africa

Rules for home loans in South Africa may differ to those of your home country. Get to know the mortgage rates and other details associated with taking a mortgage in South Africa with this guide.

There are no legal restrictions on foreigners buying property in South Africa, although non-residents looking to invest may have to pay as much as 50% of the purchase price up-front as a deposit.

The relatively low cost of property compared to many western European countries has made buying in South Africa an appealing option.

Whether you are an expat resident looking to buy or a non-resident looking to invest or purchase a holiday home, it is likely that you will have to take out a South African mortgage (or bond, as they’re often known).

This guide to South African mortgages will explain:

Should you buy property in South Africa?

According to data from the 2017 General Household Survey (released June 2018), 53.5% of households own their own home.

The housing market in South Africa, however, is currently experiencing a tough time.

Prices have been experiencing a real-terms decline in South Africa since 2016, and an increased cost of living combined with controversy over land reforms in have meant the average time it takes to sell a home increased to 16.4 weeks in the second quarter of 2018.

The downturn will likely continue in 2019, however; the mortgage lender FNB has predicted that housing growth in 2019 will be at a nominal rate of 3.7%, outstripped by the forecast for CPI inflation of 5.3%.

Buying in South Africa isn’t a no-brainer for expats, either. High-interest rates, additional purchase costs, and high capital gains tax mean home-ownership is less appealing for expats who aren’t planning on living in South Africa for the long term.

Foreign residents are generally offered less favorable rates on mortgages in South Africa than locals. As a result, you may want to rent if you think you will only stay a few years.

See our guides to buying a South African property and renting a property in South Africa for further information.

Who can get a mortgage in South Africa?

There are no legal restrictions on anyone, including non-residents, buying property in South Africa.

However, conditions on mortgages are stricter for foreigners than home residents. For example, all loans to foreign residents and non-residents need to be approved by the South African Reserve Bank.

Foreigners can usually only borrow up to 50% of the value of the property, and must pay the other 50% as a deposit.

Terms tend to relax slightly if you can prove you have a South African residence or a work permit, but this varies from bank to bank. Some lenders may require you to set up a South African bank account if you don’t already have one, so that your mortgage payments can be debited.

If you are given permission for a loan by the South African Reserve Bank and pass the necessary financial checks, you will be able to take out a South African mortgage.

In order to apply for a mortgage, you will need to produce the following:

• valid ID (such as a passport);
• proof of South African residence (unless purchasing as a non-resident);
• certificate from the South African Reserve Bank proving permission to take out the loan;
• proof that you’ve passed the credit check (e.g., bank statements or international credit check);
• proof that you can afford the mortgage. The standard debt-to-income ratio in South Africa is 30-33%, meaning that your South African mortgage repayments plus existing debts cannot be higher than 33% of your gross income.

Mortgage rates in South Africa

South African mortgage rates are high, with standard interest rates at around 10%.

Interest rates on South African mortgages are often set slightly higher for foreign residents. Variable-rate mortgages in South Africa are more popular than fixed-rate ones, mainly due to the unfavourable fixed rates.

Mortgages in South Africa can be taken out over a period of 30 years, although it is more common for people to take out 20-year terms. You will normally need to have paid off your South African mortgage in full by the time you reach 70.

If you default on your mortgage payments, you risk losing your home. If you experience difficulty in meeting payments, you should contact your bank immediately.

Mortgage calculators for South Africa

You can check monthly repayments and maximum loan availability using this South African mortgage calculator.

You can also check likely administration costs on the mortgage here.

Costs of securing a South African mortgage

There are a few add-on costs that you’ll need to budget for when buying a South African property and taking out a mortgage. Overall, is advisable to plan for an additional 4–5% on top of the price of the property.

South African mortgage costs include:

• Bank fees: these include a valuation fee (property assessment fees are usually between R1,000–R3,000), registration fee (between R70–R1,250), mortgage initiation fee (between R200–R5,000), interim interest (from registration to first instalment) and administration fee (monthly handling fee is usually between R5–R25);
• Transfer duty: ranges from 0% on properties up to R900,000, to 11% on properties over R10,000,000;
• Conveyancing fee: between ZAR 1,250–R36,000, plus VAT;
• Building insurance: usually required by South African mortgage lenders. See more information in our guide to insurance in South Africa

You can check administration costs with this South African mortgage calculator.

Tax refunds on your South African mortgage

There are no tax benefits if you own and live in a South African home.

Tax deductions on homeownership expenses apply only to second homes and those bought for buy-to-let investment.

Any rental income derived from the property needs to be added to other taxable income, but the following expenses are tax deductible:

• rates and taxes;
• bond interest;
• advertisements;
• fees for letting agents managing the property;
• homeowners insurance;
• garden services;
• repairs and maintenance (but not improvement costs);
• security and property levies.

See our guide to taxation in South Africa for more information.

How to apply for a mortgage in South Africa

You will need to follow these steps to apply for a mortgage in South Africa:

• Decide if you want to apply directly through a bank or use a mortgage broker.
• Choose an appropriate mortgage and find a qualified solicitor to act on your behalf.
• Hand over the requested paperwork to the bank or broker.
• Work out what will be the maximum amount you can borrow, how much monthly payments will be, and any additional fees. You can do this using the South African mortgage calculators.
• Find a suitable property within your budget and make a formal offer.
• Once the price has been agreed, you will have to pay the mortgage deposit to secure the sale and agree on a completion date.

Banks in South Africa offering mortgages to foreigners

All major banks in South Africa offer mortgages to expats, including:

• Absa
• Capitec Bank
• FNB
• Nedbank
• Standard Bank

Mortgage brokers in South Africa

• Bankbonds
• Ooba

What types of mortgage are available in South Africa?

There are three main types of South African mortgages. You will be able to discuss with your bank or broker which is most suitable for you.

Fixed-rate mortgage

This is a type of mortgage where the interest rate is set at a fixed amount throughout the repayment period, and it is not affected by fluctuations in the interest rate.

Fixed-rate mortgages in South Africa are generally less popular due to uncompetitive interest rates offered by South African banks.

Variable-rate mortgage

If you have a variable-rate mortgage, your monthly repayments will vary according to the current interest rate in South Africa.

Although there is less certainty regarding repayment amounts with this type mortgage, it is more commonly taken out than a fixed-rate mortgage.

Interest-only mortgage

Interest-only mortgages allow you to just pay off the interest for a set period (usually 20 years), and then pay off the balance owed on the mortgage in one lump sum at the end of the term.

This is a newer type of mortgage in South Africa. However, it’s become more difficult to take out this kind of mortgage since the 2008 financial crash.

Not all South African banks will offer an interest-only mortgage and it’s the most difficult one to apply for. It’s generally used for buy-to-let purchasers and in cases where the buyers can demonstrate they will have the capability to pay off the lump sum at the end of the term.

Useful resources

• South African mortgage affordability calculator
• Additional costs calculator