Buy early and low to beat negative equity

If you want to avoid the negative equity “monster” that can swallow your home whole, you’ll need to do some forward planning.
So says Tjaart van der Walt, CEO of the RealNet estate agency group, who notes: “Amid all the positive news about the recovery of the real estate market, we should not lose sight of the fact that negative equity is what did most of the damage to homeowners during the 2008 / 09 recession – and remains a danger for every new generation of buyers.”
Negative equity, he explains, is the term for the situation when the outstanding balance on a home loan is bigger than the current market value of the property. “And it can bite hard when sharply rising interest rates make it difficult for the owner to pay the monthly loan instalments but at the same time cause housing demand to fall off and prices to decline.
“In such market conditions, the struggling homeowner who decides to sell his property rather than default on the loan and have it repossessed is, sadly, unlikely to realise even what he owes the bank. Even worse, he will still be indebted for the difference, and gain nothing from the sale to put towards buying another home.”
However, Van der Walt notes, the recession also provided some lessons about the best ways to avoid negative equity, the first being to try to buy at the start of a market upturn and not at the height of a boom. “Those worst affected and most at risk of losing their homes during the recession were those who had bought when home prices were peaking in 2007, and especially those who had taken out 100% or even 108% loans to do so.
 “Clearly, when you have little or no equity in your property, values don’t have to fall very far to put you into a negative situation.”
On the other hand, he says, those who had paid substantial deposits on their homes or worked hard to reduce their home loan balances and build equity in their homes were mostly able to ride out the recession quite comfortably, “so the second vital lesson is not to over-borrow or over-reach yourself financially, no matter how much you like a property.
“Rather buy a less expensive home, pay a deposit and give yourself lots of room to manoeuvre, bearing in mind that market conditions can change at any time. Then sit back and watch negative equity slink back into the shadows.”
Issued by RealNet

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us