Is now the right time to upgrade to a bigger, better home?

Economic problems such as those SA is currently experiencing are usually viewed as negatives for the real estate industry, but they often also spell “opportunity” for astute property buyers, says Shaun Rademeyer, chief executive of bond originator BetterBond (previously BetterLife Home Loans).

“The economy has now slipped into a technical recession following the loss of confidence caused by the investment rating downgrades earlier this year – and such events always change the dynamics of the real estate market by lowering demand, increasing the supply of homes for sale, and causing sellers to be more negotiable on their asking prices,” he says.

“And this means there will shortly be some excellent buying opportunities for existing homeowners who have been contemplating upgrades, as well as for investors wanting to acquire rental properties – even if they do have a tough time getting home loans.”

Rademeyer says there is widespread speculation that the Reserve Bank will respond to the recession by lowering interest rates after the next meeting of the Monetary Policy Committee in July. This would lower the home loan instalments of existing owners, and make it easier for buyers to qualify for new loans.

“This is not to say that the banks are likely to relax their credit granting criteria, because that is really not on the cards. But it will mean that you need to earn less to qualify for bigger loans, especially if you are selling or have already sold your current property and will be able to put down a significant deposit on your upgrade home.”

Meanwhile, he says, the rate of home price growth has already slowed right down and could even turn negative over the next few months as the number of sellers increases faster than the number of buyers.

“This is bound to make sellers more flexible when it comes to price negotiations and it means that even if interest rates don’t come down, properties are going to become more affordable.

“In short, knowledgeable buyers and investors will not want to miss the opportunity that the current market conditions are creating for them to upgrade or to build up their portfolios, in the same way they did in the months following the global financial crisis and recession in 2009.

“At that time, property prices were plummeting and many people were desperately trying to offload their properties and get out of the market. But you only have to look at the increase in values since then to see what a smart idea it was to go against the tide, especially in areas like the Atlantic seaboard and Sandton.”

However, says Rademeyer, this doesn’t mean that those who want to buy now will necessarily have an easy time getting finance.

“The current economic situation does unfortunately increase the overall risk of loan defaults, so the banks are increasingly cautious about lending, and the best chance prospective buyers have of being approved for a home loan is to apply through an established and reputable bond originator.

“We currently still obtain approval for 75% of the home loan applications we submit, while the approval ratio in the open market is now only around 35%. In addition, we always negotiate the best possible interest rate for our clients, because we know that even a small concession can make a big difference to the success of their property purchase or investment.”

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