select
|

2013, the year to escape the debt trap

The residential property market survived 2012 with a few nicks and bruises but, generally it remained stable with positive signs; like the banks relaxing their loan requirements and the historically low repo rate to help matters along.

That was 2012. In 2013 the FNB’s latest Household Consumer Debt Service Risk Index paints a picture of trouble to come; currently the household debt-to-disposable-income ratio stands at 76% and the Debt Risk Index stands at 6.68% - considerably higher than the long run average of 5.3%. But what do these figures mean to you and me, the average homeowner?

They imply that, for most of us, our household debt is higher than our disposable income which is easy to forget when interest rates are low (they are presently at 8.5% and not expected to go lower). The problem is that what goes up must come down and vice versa. John Loos, Household and Property Sector Strategist at FNB, points out that: “Should interest rates not decline further, and currently accelerating household sector credit growth does push the debt-to-disposable income and debt-service ratios higher, this recent level of debt-service ratio could represent the bottom turning point of the current cycle. Should this be the case, it would be the highest bottom turning point in recorded history. Given that the debt service ratio is a fairly good predictor of household credit performance, that is a cause for concern”.

“What home owners need to do urgently is start saving, as much as possible because we’re not likely to see a further lowering of either the interest or the repo rates and, should they start going up again owners are going to feel the pinch”, says Jan le Roux, CEO of Leapfrog Property Group. It is a well known fact that people tend to neglect saving when rates are low and buying off debt is easier, then struggle to amend their spending habits once rates are higher and their disposable income considerably less.

Of course saving is easier said than done especially when electricity prices, food prices and municipal rates have all increased over the past year. “One of the best ways to save is not to go into debt for anything that is not an asset”, says le Roux, “don’t borrow money to spend on luxuries like holidays, if you don’t have the cash, don’t spend it”. Le Roux believes in only getting in to debt when acquiring assets like property which will increase in value, unlike cars.

“Paying extra on your mortgage is the best way of saving – what you save in interest payments will outdo your return on a savings account and the benefit is tax savy.”

Whether the SARB announces an increase in either the interest or repo rates on Thursday or not, they will need to at some point. As such it would seem that the wise man’s decision would be to start tightening his belt now.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
    • 21 Nov 2017
      When an offer to purchase a property is signed by both buyer and seller, this constitutes a binding agreement or “Deed of Sale” between the two parties. However, in most cases the “standard contract” might not be enough to cover all the specifics pertaining to the sale. The agreement may require some additions or alterations to clauses, which needs an expert hand in the drafting of such
    • 21 Nov 2017
      As more and more South Africans look to invest in property abroad, Spain is offering them one of the best deals in global real estate.
    • 20 Nov 2017
      Since 2012, sectional title complexes have been leading the South African property market, not only in terms of price growth, but sales volumes as well. Remaining relatively strong, even in the face of 2017’s political and economic turmoil, experts say this market segment could offer valuable insight into South Africans’ property purchase priorities.
    • 20 Nov 2017
      Regardless of whether you are purchasing your first start-up home, downsizing or moving in with roommates, finding ways to maximise small spaces can be a big advantage, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Nov 2017
      Property valued at approximately R1 billion is on High Street Auctions’ sales floor during the month of November, including the much-anticipated sale of the Tshwane Mayoral Residence and the land occupied by one of South Africa’s oldest operating gold mines.
    • 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.
        
    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