Fine-tune the finance for second home purchases

If you’re one of those planning to spend this festive season scouting for a second property that you could let out as a holiday home or permanently, you should first establish whether your bank will approve a home loan to finance the purchase – and more importantly, what interest rate it will charge on that loan.
Martin Schultheiss, CEO of the Harcourts Africa real estate group, says many property owners just assume that since the home loan for a second property is being granted to the same borrower, the same interest rate that they pay on their primary residence will apply.
“However, that is often not the case. Even if the property is well-located and your credit record is impeccable, you are quite likely to be quoted a higher interest rate than on your existing home loan.
“What is more, you may well find that your bank requires quite a hefty deposit for the purchase of a second property.”
The reason for this, he says, is that from experience the banks know that if a borrower runs into financial difficulties, he is more likely to default on the loan used to buy a rental property than on the mortgage covering his own home.
“In addition, the repayment of a loan used to purchase a rental property is usually at least somewhat dependent on the owner actually receiving rental income from that property, and there is thus a higher risk attached.
“This is what the bank will be try to offset with a higher interest rate or a lower loan-to-value ratio – and if you hope to argue the point, the only way is to demonstrate convincingly that you could easily afford the repayments on the new property in addition to your other commitments, even if you did not receive rent.
“And to do this, most people would need expert help, which is why we advise clients to spend time with a mortgage originator and an experienced agent so that they can clarify exactly what they’re looking for before venturing out into the market.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us