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
    • 22 Jan 2018
      Moving away from the city to a country or coastal town and a slower-paced life is a frequent new-year resolution for South Africans, but thorough research should be done before you break free from the hustle and bustle, because making the wrong move could turn out to be a very expensive mistake, and even more stressful for you and your family than staying in the “big smoke”.
    • 22 Jan 2018
      Cape Town is home to many breathtaking and historic homes, but House Invermark designed in 1969 by South African architect Gilbert Colyn, with inspiration from two modernist icons: the Glass House by Phillip Johnson and Farnsworth House by Ludwig Mies van der Rohe is in a class of its own.
    • 22 Jan 2018
      2017 was a challenging year for the South African property market in general, despite small pockets of thriving activity in areas like the Western Cape. As we head into 2018, Tony Clarke, Managing Director of the Rawson Property Group, casts his eye forward to property trends and market influences that could make their impact felt in the New Year.
    • 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.
        
    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