First-time buyers should not hang back now
First-time buyers should not let this year's interest rate increases put a spoke in their plans to become homeowners.
In fact, says Berry Everitt, MD of the Chas Everitt International property group, they should read the increases as a signal to accelerate those plans and get into the property market as soon as possible.
Here's why: Let's say you're interested in buying a home that costs R500 000, and can negotiate a one percentage point discount on the current mortgage base rate of 11,5 percent. If you buy now, your minimum monthly repayment on a R450 000 loan (after a 10 percent deposit) would be just over R4500 a month.
But if you wait, hoping that interest rates might drop back again, still-rising property prices and building costs could easily elevate the cost of the home you want to R540 000, R550 000 or even R560 000 by this time next year. That means you'd need more cash for the deposit, and a larger home loan.
"Even if property prices were to rise only five percent, you'd need to borrow R472 500 instead of R450 000, and this would push the minimum monthly repayment up to around R4715 - and the income qualification level to get a bond up from R15 000 a month to R15 720," notes Everitt.
"And this does not take into account the rent you'll be paying for another year instead of starting to pay off your home loan, or the probability in the light of the weaker rand that interest rates will actually go up again this year, which will make it even more difficult to qualify for a home loan."
Everitt says young adults also often delay buying their first property until they are settled in a career or until they tie the marital knot. They argue that they may be prime candidates for job transfers precisely because they are single, or that they may be saddled with property that would be unsuitable once they get married.
"But getting a toehold in the property market as soon as possible is a smart move - even for young single people taking the first steps on a career path.
Property is an excellent saving mechanism and a commodity that can be sold or even rented out if they are transferred to another city or decide to get married and start a family.
"They should also keep in mind that there is never a better time to buy property than as soon as they can afford to pay for accommodation. Money spent on renting property pays off the landlord's bond and could be far better employed on paying off the bond on their own property."
Of course young buyers do have to make very sure that that they do not over-extend themselves financially, he says. "They need to take a careful look at their budgets and calculate precisely how much they can afford to spend. They also need to take into account how much it will cost to maintain the property.
"But again, they should make plans to buy as soon as possible, and seek the advice of a seasoned, reputable estate agent to find the perfect "fit" that will set them on the path to profitable homeownership."
Issued by Chas Everitt International
For further information call Brenda Smith at
Chas Everitt International Bryanston on 011 463 2033
or visit www.chaseveritt.com