Buyers need to make a move – carefully
Prospective home buyers have been given another “breather” when it comes to applying for a home loan – but this week’s decision by the Monetary Policy Committee (MPC) to leave interest rates unchanged should not make them complacent.
That’s the word from Shaun Rademeyer, CEO of SA’s leading mortgage originator BetterBond, who says they should heed repeated warnings from Reserve Bank Governor Gill Marcus that interest rates will have to be raised in the near future to put the brakes on inflation.
“As it is, the Consumer Price Index breached the Bank’s 6% upper target in April, and the Governor noted this week that the rand was still under extreme pressure due to a lack of investor confidence in developing markets generally. This of course has a negative effect on fuel prices and we are now also entering a season of higher food prices and the annual increases in administered prices like electricity tariffs.”
Consequently, he says, those who are planning to enter the property market for the first time, and those who wish to upgrade to a more expensive property, should do so without delay, as even a 0,5% point increase in interest rates could have a negative effect on their ability to get a home loan approved.
“Every increase of course means higher monthly repayments on things like cars, furniture, credit cards and store accounts which, added to the increases in living costs will leave prospective buyers even less of the disposable income that banks are looking for now when they consider home loan applications.
“At the same time, property prices themselves are currently moving up steadily, thanks to a growing shortage of stock for sale in many popular areas, and prospective borrowers could well find that they don’t qualify for the bigger loans they need once interest rates – and monthly repayments – have gone up.”
However, Rademeyer says, now is also the time for home buyers to be extremely cautious in their choice of property. “It is absolutely essential that they allow themselves enough leeway to cope with future rate increases when they do their own affordability calculations – or even better, that they seek help from a reputable bond originator like BetterBond to get home loan pre-approval, so that they will know what their property price range is, with some leeway built in.”
Meanwhile, existing homeowners should be taking every opportunity now to pay down the capital on their home loans, he says, so that their monthly installments don’t rise too much when interest rates are increased.