The sooner you buy, the more affordable it will be

The sooner you buy, the more affordable it will be

First-time buyers who are still saving and searching for their perfect property may well have missed the bottom of the market cycle now, but that does not mean that they should give up on the prospect of home ownership.

In fact, says Jan Davel, MD of the RealNet estate agency group, it means that they should try to accelerate their home purchase plans – or risk having to pay a great deal more to get into the property market in a year or two.

“The bottom of any market is that theoretical period when the lowest home prices and lowest mortgage rates supposedly intersect, and we are past that point in most parts of the country now, because property prices have started rising in real terms,” he notes.

“But values are still well off the highs experienced in the last property boom, while home loan interest rates are still at historic lows, providing buyers with a home financing opportunity right now that is unlikely to occur very often in their lifetimes – or to last very much longer, since expert opinion is that interest rates will start to rise again next year.”

To gain some measure of this opportunity, Davel says, one can look at the latest affordability statistics from Absa, which show that the monthly repayment on a R1million bond is around 39% lower now than it was at the end of the boom in December 2008, thanks to the fact that the “standard” home loan interest rate has dropped from 15,5% to 8,5% since then.

“What this means for first-time buyers, who are more likely to be looking at a bond of around R500 000, is that the monthly repayment now would be a much more affordable R4339 than the R7170 it would have been five years ago.

“It also means that they would only need a household income of around R14 500 to qualify for the bond now, as opposed to the R23 900 they would have needed then (assuming, of course, that this income is not completely absorbed by other debt repayments and living expenses).”

However, he says, this scenario could change rapidly if interest rates start to rise again, as predicted.For example, a rise in the standard home loan rate of just one percentage point to 9,5% would boost the minimum monthly repayment on a R500 000 bond to R4661 – and the minimum household income required to qualify for that bond to more than R15 500.

“What is more, if property prices rise just 5% in the next 12 months, first-time buyers will need even bigger deposits, bigger bonds – and bigger household incomes – to purchase the properties they could have bought this year. A R500 000 bond is likely to become a R525 000 bond, for example, and at an interest rate of 9,5%, that would push the monthly bond repayment up to R4894.”

In short, says Davel, although most prospective buyers probably won’t be priced right out of the market if they don’t buy now, the chances are that a great many of them will be looking back in a few years’ time and kicking themselves for not buying earlier.


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