To Buy or to Rent

The demand for housing in Malawi continues to outstrip of its supply. There is a need for at least 21,000 housing units per annum but the supply is far below that. Consequently, house rentals are soaring way more than the mortgage premiums.
Most families are obviously contemplating on buying so as to convert the rentals into assets but they are scared of a loan. I have heard countless times that ‘tikuwopa ngongole, tikazalephela kubweza, atilanda nyumba’. But these fears aren’t just out of the blues; in the 90s and early 2000s Banks repossessed people’s homes due to failure to adhere to mortgage requirements. As the rentals have sky-rocketed even those who can afford to repay the loans are finding themselves paying more in monthly rentals than they would have if paying their monthly mortgage premiums.

But as Frankllin Delano Roosevelt, the president who took USA through the turbulent waters of the Great Depression used to say, there is nothing to fear. Families have to consider the rentals they are currently paying, and cross check on the amounts the houses in a similar neighbourhood are being sold for. This can be done through Estate Agents or cross checking with the newspapers on the classified ads.

For example, houses in Area 18B in Lilongwe are currently being sold for around MK9,000,000 and if you were to get a loan from the Bank then your family needs a minimum of 10% (MK900,000) and for a 20 year loan you have to pay a minimum of MK118,000 with monthly insurance premiums being added as well. This assumes a base lending rate of 17%, assuming some of the Banks also reduce their rate by 2% following the reduction by the Reserve Bank.

As the rentals for an ordinary area 18B house are around MK70,000 per month as a family you might need to either spend more on paying for your house or consider purchasing a house in another neighbourhood. For example houses in Gulliver, Lilongwe, are currently selling at an average of MK5,500,000 and the expected monthly premium is at MK 72,500 after deducting the 10% deposit and excluding the insurance payments. In that case, your family might decide to move out of Area 18B and purchase a house in Gulliver and pay exactly the same rentals as monthly repayments for the mortgage. Google searches can provides good mortgage calculators to help in your decision making process.

Most mortgage lenders in the country (most of the banks now have a mortgage facility) would want to know about your financial history. This is not just your pay slip for the past six months but your bank statements where most of your income is directed as they will use this as the basis of your application. Some of the lending agencies will only consider you only if you have banked with them for the past 6 months. This of course is unrealistic. Fortunately, with the multiplicity of agencies offering this service, that requirement might be lifted. Some of the banks might consider combined incomes, for example if you and your spouse are working, they will combine your incomes so as to determine if you can be eligible for the amount your family is applying for.
Wanting to purchase a house is one thing, but you have to brace for a fight.. There are very few houses on the market and many buyers, and with the advent of more banks offering mortgage more people can manage to buy through a loan. Some Landlords do not want to wait for you as you process your mortgage, they would rather sell their house to someone who can pay cash or the one who can pay a bigger deposit. This means you have to start saving not only for the 10% the bank will not give you but for the other amount your landlord might request, some go as far up as 50%, and this leaves out so many families out of the buying market.

As can be noted, buying a house only makes sense if you were to pay the same amount towards repayment or if as a family you can top up and pay more in repayments. The advantage with purchasing your own home is that every little investment you make into the house as you turn it into a home, counts and will add towards the appreciated value of that particular house. Whereas, when renting you are always wary of the water bills. As the lawn gets green, you worry that once your landlord sees the improved home he/she will increase the rentals. As mentioned above the downside with mortgage is that you have to pay your premiums as per the dotted line of the contract as you cannot talk about the funeral or problems you might or might not be having as we always do with the landlord and living in fear kuti nyumba atilanda is real as well.