Homebuyers who snooze now will lose

Although it’s relatively difficult to obtain finance at the moment, prospective homeowners should not be dissuaded from trying to buy a property – for one very good reason.
And this is, says Harcourts Africa CEO Richard Gray, that the current buyers’ market will not last forever. “The property market has always been cyclical, providing the opportunity for those who have the courage and foresight to buy when it is in a down phase to reap bigger rewards than those who wait to buy until the market is on the upswing.
“On the other hand, those who wait until an upturn is underway risk losing out because it will become more costly to buy - and even more difficult to qualify for a home loan and afford the additional costs association with a home purchase.
“To take a simple example, if you’re interested in buying a home that costs R500 000 now, you will probably need a 10% deposit of R50 000 and about R22 000 for costs. Your monthly repayment on a loan of R450 000 will be some R4100 a month (at an interest rate of 9%).
“But if prices were to rise just 3% in the next 12 months, that same home would be priced at R515 000. You would need a deposit of R51 500 and about R24 000 for costs. And even assuming that interest rates had not also risen in the year, your monthly repayment would increase to R4200.”
What is more, he says, the higher the projected monthly repayment, the harder it becomes to qualify for a home loan in terms of the affordability ratios used by the banks.
“Roughly speaking, you would need to earn just under R13 700 a month to qualify for the bond on the R500 000 house in the example above, and about R14 000 to qualify for the bond on the same house a year later. And this once again assumes that interest rates would have stayed the same which, quite frankly, is unlikely to be the case.”
Gray also notes that these calculations take no account of the value of the monthly rent tenants are paying, “but on this score it is worth saying again that if you're not buying a home for yourself, you're buying one for someone else – and putting them in a position to benefit from the next market upturn.”

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