Tips for first-time and buy-to-let property buyers
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The residential property market will be slightly skewed in favour of the seller in 2015 as last year’s shortages continue to drive house prices up, experts say.
“What we’ll see in 2015 is a lot more developments coming online. So, I think (later in the year) it’s going to revert to a fairly neutral market. I don’t think it will be a strong buyer’s or seller’s market,” says Richard Gray, CEO of national group Harcourts Real Estate.
The average consumer is catching a few breaks this year. “With petrol prices coming down, people have a bit more income, interest rates have been low for a long time now … people have their heads back above water and buyers are not struggling as much with their finance,” says Gray.
It’s a sentiment shared by FNB household and property sector strategist John Loos, who expects interest rates to remain flat for the better part of the year, as lower oil and global food prices reduce inflationary pressures. On the plus side this will stimulate consumers’ interest in the housing market but, with fewer properties currently available, it will also lead to an estimated 8% increase in house prices come year-end, he adds.
Buyers’ ability to afford homes will therefore be slightly diminished.
According to FNB’s Property Barometer, following price growth in the previous two years, 2014 saw a mild deterioration in affordability. This could well continue into 2015 – somewhat limiting buyers’ property options.
“That may sound strange to some, because a lot of people think that the better the market is, the better the opportunities to buy but, in fact, it is quite the opposite. Buying on the lows and selling on the highs is the best-case scenario,” Gray says.
“But if you’re a first-time buyer looking for a property that you are going to live in (as opposed to buying-to-let), then timing the cycle should not really be your focus, because you could wait years until the next bottom point. If you’re a buy-to-let investor then perhaps it would be better to wait a while. So it really depends on each person’s particular situation.”
CEO of Chas Everitt International Property Group Berry Everitt agrees that the residential property market is on the up, but warns sellers who are inclined to raise their asking prices to do so within reason.
“The residential market will continue to be strong, but by no means are we in a ‘boom’,” says Everitt, adding that sellers still need to have strategies to outperform other sellers and be mindful of the strict lending criteria that banks still apply.
“Buyers are going to have to be patient in order to find the right properties at a price they can afford. But also, they should not sit on the fence (when one comes along) because good stock will sell quickly.”
Tips for first-time buyers
- First-time buyers should ensure they know how much funding they qualify for, before they start shopping around, Everitt advises. They should “…not necessarily have received their mortgage bond (because you can’t do that until you’ve made an offer to purchase), but they should go to a mortgage originator … and get them to pre-qualify them and find the right bank. They can motivate that particular client’s case better than they could if they went directly to a bank.”
- Most importantly, buyers shouldn’t over-extend themselves. That means not going for the maximum possible bond that they qualify for, because economic conditions could always change for the worse at any given time, leading to finances that they wouldn’t be able to manage. Interest rates will eventually rise again and it is important to allow some leeway for mortgage movement.
- It’s vital to have some kind of financial buffer – be it savings or investments – that can be accessed in the event of emergencies that could cause you to miss your mortgage payments.
- Generally, spending about 30% of your income on a home loan repayment is considered reasonably affordable.
- Critically, secure the lowest interest rate possible. “People tend to accept that their bonds require a monthly payment, which they have no way of influencing. In fact, there are many things that you can do that may alter the amount of interest you end up paying and the term of your repayments,” says Kay Geldenhuys, property finance processing manager at bond originator Ooba. She says many buyers hurry to accept a bond from the bank that offers them the biggest loan, with less regard to the interest rate. Securing a lower interest rate will save you a great deal of money long term.
Author: www.moneyweb.co.za - Sungula Nkabinde