select
|

Beware of buying too much home

Given the strict provisions of the National Credit Act, it is virtually impossible these days for prospective homeowners to buy at the outside margin of their affordability.

However, with prices still well off their boom-day highs and interest rates at the lowest level in almost 40 years, there are many new buyers who believe that now would be a good time to stretch themselves as far as they can to buy a bigger or more expensive home than they might otherwise have considered.

Says Berry Everitt, MD of the Chas Everitt International property group: ”The argument that prospective buyers most commonly use in favour of this strategy is that they would like to avoid the hassle and cost of moving to a bigger home later in life.

“And it is true that besides the actual removal charges, the costs of selling one home and taking transfer of another, including bond and legal fees as well as transfer duty, can total many thousands of rands. Add this to the time and stress involved in settling in at a new location, and taking on a bigger mortgage now might seem like a fair exchange for being able to 'stay put' later.”

But there are also several powerful arguments against such a decision, he notes. “Firstly, the property market is in a constant state of flux and values can go down just as easily they go up, while interest rates could and probably will start to rise again. Consequently it is prudent to always leave yourself a margin, not only so that you will be able to afford a higher monthly bond repayment if necessary, but also so that you will not end up in a negative equity situation if home values should fall.”

Writing in the Property Signposts newsletter, Everitt says homebuyers also need to be very realistic about their employment prospects. “Gone are the days when the average person could count on working for a company for 20 years or more and retiring on a comfortable pension, and yet the decision to take on a larger home loan now means you will probably have to produce income at the current level or higher for many years to come.

“So you need to be very confident that your job is secure, and also accept that your freedom to give it up and pursue a different career is likely to be very limited.

“And finally, if your reasons for buying a bigger home include the fact that you want to start a family, you need to be sure that you could still afford your home loan repayments if either you or your spouse were to stop working after you’ve had children.”
Thus a better strategy, he says, might be to buy conservatively now, and take advantage of the current31 August 2012 low interest rates and bond repayments by channelling any money you can save into reducing the capital on your home loan and creating equity.

“That way you will have more secure tenure no matter what happens with regard to interest rates, property prices or job and family changes – and you will be able to keep more of the proceeds if you decide to sell.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 25 Apr 2018
      Whether you are a seasoned seller or new to the game, putting your home on the market is an exciting moment. To ensure you get the best possible outcome these 8 value adding additions to your home is worth the effort.
    • 25 Apr 2018
      After four years of unprecedented growth fuelled by semigration, the Southern suburbs market faced a number of challenges in 2017, including dwindling affordability and a marked slowing in house price growth with many sellers forced to lower their prices in order to secure a sale.
    • 25 Apr 2018
      Mall of Africa, is celebrating its second year of sensational success. This splendid super-regional shopping centre first opened on 28 April 2016, and has grown in popularity, performance and profile since then.
    • 25 Apr 2018
      While the role of trustee in a sectional title scheme is a voluntary and unpaid position, it is one that comes with huge responsibility. Trustees have a fiduciary duty towards their scheme, says Chinelle Hewit, Operations Manager at sectional title finance company Propell.
    • 24 Apr 2018
      The thing about the property ladder is that at some point in our lives we all have reason to want to climb a rung or two higher. Sometimes, it’s because we’ve outgrown our previous dream home, or because we want to be in a better neighbourhood that’s closer to work or to schools. Sometimes it’s because our circumstances have changed, and we’re taking care of elderly parents or relatives. Sometimes, it’s just because we want a property that reflects the financial status our hard work has won.
    • 20 Apr 2018
      Whenever changes in the political ecosystem of a traditional property market create uncertainty, smart investors begin to look elsewhere for new opportunities. Property experts at IP Global have analysed the trends and crunched the numbers to find new markets to explore in Europe and the United States.
    • 20 Apr 2018
      Energy and water self-sufficiency are increasingly important factors in home buyers’ choice of property – especially in Cape Town where the extreme drought of the past few years has made municipal supply costly as well as uncertain.
    • 19 Apr 2018
      During the last decade, rampant development has progressively transformed Cape Town’s property landscape with densification being the order of the day, but there are still one or two hidden gems like Scarborough which have retained their original character, offering an inimitable lifestyle and an attractive investment opportunity.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK