This article first appeared in our Property360 digital magazine
Record-low interest rates have been spurring first-time home buying around the country. The rates are not expected to drop any further though, leaving many aspirant owners wondering whether they have missed out on their chance to buy.
The good news, experts say, is that it is not too late. However, buyers need to start preparing for the journey as soon as possible.
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Benefits of buying - and buying now
With the interest rate at 7%, a buyer would need to earn about R26 000 a month to qualify for a bond on a home selling at just over R1 million, Betterbond calculations reveal. The monthly instalments would be about R7 800. Adrian Goslett, chief executive of Re/Max of Southern Africa, says owning a home gives people a sense of stability that renting simply cannot offer.
“Owning your own home means that you have a place in which to cross milestones and create lasting memories with your family. You do not need to stress about whether the landlord will renew your lease or push up the rent to beyond what you can afford. “Homeownership provides you with the security to mark your children’s growth against the door frame without worrying about whether you’ll still be there to track their progress by their next birthday.”
How much time do you have to buy at the current rates?
The prime lending rate remains steady at its near 50-year low and it is unlikely to dip further, says Dr Andrew Golding, chief executive of the Pam Golding Property group. This is a reminder that anyone thinking of buying a home should do so now.
“Views on when the South African Reserve Bank will ultimately begin to raise local interest rates are varied. Many are suggesting that they will remain unchanged until next year, while some believe rates may begin rising towards the end of this year. “One thing we do know is that in unusually uncertain times such as these, forecasting is far from an exact science.”
Should I tighten my belt and just the plunge?
Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group, says current buying conditions are perfect, but aspiring owners need to ask themselves whether they can really afford to buy.
However, he adds that at the current interest rates, they also cannot afford not to grab the opportunity. “The thing about property is that it’s an appreciating asset. Yes, it’s a long-term financial commitment, and it can be a squeeze to get your foot in the door, but it’s also an incredibly valuable building block towards financial freedom.”
Unlike rental payments, which disappear into someone else’s pocket, each monthly bond repayment brings investors one step closer to owning their home.
“It’s like a forced savings plan, with far better growth prospects than any bank account I’ve seen these days. Every day your property appreciates and every time you pay off a little more of your loan account, your net worth as an individual grows,” Van der Merwe says.
What financial commitment am I looking at? While interest rates could begin to climb again in months or years to come, Van der Merwe says the process is likely to be very gradual, given the state of the economy. Current predictions are for a maximum 0.5% increase this year – the equivalent of an extra R379 a month on a R1.25m loan.
If those numbers are still out of reach, however, he says buyers also have the option of extending their loan to 30 years. This would drop the repayments to R8 316 a month (at a prime rate of 7%).
The downside is that the longer loan term would increase the total cost of the property over the lifetime of the bond but this could be a worthwhile sacrifice for the opportunity to tap into today’s good buying conditions.
“I’m certainly not suggesting buyers overextend themselves to get into the market but I do believe property is an excellent way to improve financial standing through stability, predictability and growth.” Van der Merwe adds: “I always recommend prospective buyers draw up a monthly budget to work out exactly what they can and can’t afford. A good bond consultant can assist with this – they have a huge amount of experience. They can also use the results to help individuals polish up their credit records and pre-qualify for a home loan at the best possible rates.”
How can I get my finances in order?
Having a good credit score is one of the most important things that banks look at when considering home loan affordability, says Carl Coetzee, chief executive of BetterBond.
The best way to have a good credit record is to build it up over time. “In this case, having debt can be a good thing – provided you manage it well. This means having clothing or other retail store accounts, cellphone bills, car payments or personal loans.
If you have been careful about paying on time and covering at least the minimum amount every month, these accounts will contribute positively to your credit rating.”
He notes that a credit card can be a force for good in your bond application if you use it with care and make sure you maintain regular monthly payments. It is not only having the credit, but how you manage the credit, that tells the bank a lot about you and gives them an indication of how you could manage a home loan.
Aspirant homeowners must be sure to pay their accounts on time because even minor arrears can have a major impact on your credit rating and therefore your bond application.
Know your credit score?
Coetzee says buyers can view their credit score and access their credit report free of charge online via various credit bureaus. These allow you to obtain a detailed breakdown of past and present accounts, use the dispute function to query or clarify your information, and get advice to help you improve your credit score and raise your credit rating if it needs a bit of work.
“Remember that a good credit score is important for your overall financial wellbeing. It is always a good idea to keep an eye on it, and to maintain it to the best of your ability. Then, when the time comes, you will be in a position to get the best bond to buy your dream home.”