It’s a good idea to buy a home when interest rates are high – this is why

There are some advantages to being able to buy in a high interest rate environment. Picture: Mart Production

There are some advantages to being able to buy in a high interest rate environment. Picture: Mart Production

Published Aug 30, 2023


Buying a home when interest rates are high will give you a better chance of securing one at a good price.

There will obviously be challenges to buying in such an environment but the good news is that there tends to be far less competition among buyers when interest rates are high.

This means that sellers are more likely to accept offers below asking price, especially if there is no interest from other qualified buyers,” says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa.

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Although buying a home when interest rates are high can present some unique hurdles, homeownership is still an achievable goal with careful planning and expert guidance. And the purchase will prove to be an “excellent” long-term investment strategy for those who are able to afford it.

The challenge is to make sure you can afford the purchase, he states.

To figure out how best to do this, RE/MAX of Southern Africa shares a few tips on how to buy when interest rates are high:

Save for a larger deposit

When interest rates are high, you are likely to qualify for a lower amount in home finance, which means that you will have to save up some cash to make up the difference. This can be challenging, but there are ways to build up capital quickly.

For example, if your family owns two cars, consider selling one and use the cash towards the home. Not only will paying a more sizable deposit help with affordability, but a larger deposit will also help reduce the overall loan amount, which will lower your monthly instalments.

Shop around for the best rate

Most financial institutions are willing to offer a rate below Prime to those with a good credit score, and this becomes even more important when interest rates are high.

To make sure you find the lowest possible interest rate on your home loan, shop around and compare quotes from various banks. This can all be done for you for free through a bond origination service. They can also help get you pre-approved for home financing, which will help you shop with confidence knowing what you can actually afford.

Salvage your credit score

If your credit score is low, take a few months to improve it before you start house hunting. If you have other high-interest debts, prioritize paying them down to improve your overall financial health. Be sure to make all credit payments in full and on time every month, as failing to do so will count against you.

Goslett reminds buyers that interest rates fluctuate over time, so while that means they may still go up a bit, they may also come down.

“The rule of thumb is that your home loan should never amount to more than around 30 percent of your gross monthly income.”

If, after purchasing a home, you find yourself in financial distress down the line and can't meet your bond repayments, Carl Coetzee, chief executive of BetterBond, says you must not ignore the situation.

“Contact your bank immediately to discuss your circumstances and explore potential solutions. They may be willing to restructure the bond or offer temporary payment arrangements based on your financial situation.”

Buyers should also protect themselves against retrenchment as this will affect their ability to make their bond repayments each month. Coetzee advises that you take out a protection policy which includes death cover as well as optional disability, dread disease, and retrenchment cover.

If this is not in place and you have bought the home jointly, and your partner has a stable income and qualifies for the bond independently, the bank may consider transferring the bond into their name. However, this process usually involves reassessment and approval by the bank based on their income and creditworthiness.

“Some banks offer retrenchment insurance or payment holidays during difficult times, but these options vary,” he says.

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