Upgrade in time for the upturn

The rapid decline in the home loan interest rate since December and
the resulting increase in affordability has set the stage invitingly
for savvy homeowners to upgrade to bigger and better properties before
prices start to rise again.

"The five percentage point
drop in the mortgage rate to its current 10,5% level equates to an
increase in affordability of more than 26%," says Lew Geffen, chairman
of Sotheby's International Realty in SA.

"This means that
homeowners who were able to afford the instalments on a R1m bond at the
December interest rate of 15,5% could in most cases now afford a bond
of around R1,35m."

Property prices, meanwhile, have shown
a decline of between 10% and 15% in the past year, which means that
buyers can currently acquire even more home for their money when moving
up the property ladder. "Indeed," he says, "the total average discount
since the market downturn began is around 30%.

"What is
more, those who have taken advantage of the falling rates over the past
few months to settle debts or to save are finding themselves in favour
with the banks when it comes to obtaining new home loans, because they
often have the cash available to put down a healthy deposit on a new

With the market in its current state, Geffen
notes, it follows that homeowners intent on upgrading will most likely
have to sell their own properties for less than they could have got a
year ago. "But any reduction they take on their existing home is likely
to be heavily outweighed by the 'discount' on their new home - and they
will be well set to enjoy proportionately greater gains when the market
starts to turn upwards in a few months."

However, he says
that for homeowners to upgrade successfully, they should first secure
the sale of their existing properties, and find out from a mortgage
originator or their bank what size home loan they will be granted to
buy their next home.

"There are some truly excellent
opportunities to upgrade at the moment but it is important to know what
you can spend before you go shopping. In addition, you will always be
better received as a buyer, and able to negotiate more strongly, when
you can make your offer to purchase without any strings attached."



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