* This article first appeared in our latest Property360 digital magazine
Buying property is one of many people’s new year’s resolutions, and whether they aim to own their first home, upscale or downscale, or buy a second property, they will be conscious of rising interest rates.
They will also be aware of the rising cost of living, what with increases in the petrol price, school fees, food costs and rising water and electricity tariffs, not to mention the fact that they need to budget for home maintenance.
In the light of all this, buyers will do well to be prepared, and keep their affordability levels, not only now but throughout their bond repayment period, in mind.
To help them do this, experts offer the following advice:
Know what you can afford: Affordability is always a determining factor when it comes to looking for a home and applying for a bond, irrespective of the current interest rate, says Carl Coetzee, chief executive of BetterBond.
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You should always ensure you will be able to afford the monthly loan payments over the total repayment period. To assist with this, BetterBond, as well as financial institutions and real estate agencies, offers an online affordability calculator which gives an indication of what you can afford, taking into consideration monthly expenses and income.
“Make sure your credit score is in good shape when you’re considering buying a home, as this will improve your chance of securing the lowest interest rate possible,” he adds. You should also make sure that you have enough cash to cover the bond and transfer fees when buying a home and put down as much of a cash deposit as you can.
“Paying a 10% deposit on a R2 million property, with the prime lending rate at the current 7.25%, will drop the monthly bond repayment from R15 808 to R14 227. In 2024, when the prime lending rate could be at 10%, this could mean a saving of almost R2 000 a month on the monthly bond repayment.”
Tony Clarke, managing director of the Rawson Property Group, agrees: “Buyers with deposits will always get preferential interest rates. “A sizeable deposit can make a world of difference to the long-term affordability of your home. It also shows the bank you are financially responsible, which lowers your risk profile.”
In addition, a deposit reduces the size of the bond you’ll need, which also decreases risk from the bank’s perspective. “Plus, with a low-risk profile, you’ll have a better chance of securing finance at a favourable interest rate which, in combination with the reduced loan amount, can drop the total interest you’ll pay over the life of your bond by hundreds of thousands of rand.
Make, and stick, to a budget: Adrian Goslett, chief executive of Re/Max of Southern Africa, says homeowners and new buyers must ensure there is provision within their budgets for an increase of at least 25 basis points ahead of interest rate announcements. These take place every second month.
“Interest rates tend to go up gradually by around 0.25% or 0.5% at any given announcement, so budgeting for this ahead of time will be in your best interests.”
Before buying a home, he also recommends that buyers use an online bond calculator to find out what their monthly instalments would be if interest rates were to climb.
“This way, you will know you can afford the home no matter what happens in the future.” You should always “budget wisely” and be careful when taking on more debt that does nothing for you, Clarke says.
“So, rather save where you can to make it more financially comfortable for you in the long run. “Think twice before taking that expensive cellphone upgrade or applying for a credit card that would just encourage lavish spending and wasting money on unnecessary things.”
Consider the upkeep on the property you want: In terms of upfront and ongoing maintenance costs, you should be aware that swimming pools and large gardens tend to be costly to maintain, Goslett says.
“Once-off maintenance costs you also need to be aware of include rotten wooden window and door frames, as well as old roofs, as these can end up being very costly to fix or replace.
“If you are looking to buy a home that requires more manageable, and therefore less costly, maintenance, he recommends a small, lock-up-and-go type of apartment or townhouse.
“These tend to have the lowest possible maintenance costs as any exterior maintenance work, including the gardens or repainting the home’s exterior, should be covered by the complex’s levies.”
Once you have found the perfect property, Clarke says you need to make sure it is structurally sound. This is essential to keep down surprise repair costs.
“If you’re not sure about the structural condition of a property, I’d highly recommend getting an expert inspection performed. This is not the kind of issue you want to discover while you are living in the property.” He says you also need to remember the long-term nature of property investments and make sure that your decisions suit not only your needs today, but also in the future.
“Make sure a property will support your lifestyle for the next five to 10 years at least.
“Consider things like some room to grow, if you hope to start a family, and make sure the location offers everything you may need in terms of job opportunities, schools, shops, transport, sporting and social facilities,” Clarke says.