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Home affordability now under pressure

Homebuyers are heading for an affordability squeeze this year and should hurry to buy if they don’t want to get caught between rising interest rate and increasing home prices on the one hand, and low wages and salary increases on the other.
 
That’s the word from Shaun Rademeyer, CEO of BetterBond, SA’s leading mortgage originator, who adds that buyers should also be allowing themselves some financial leeway now in anticipation of a further 100 to 200 basis point rise in interest rates this year.
 
“Our latest statistics show that the average home price has risen from R914 000 to R936 000 in the past 12 months, while the average approved bond size has risen from R729 000 to R780 000.
 
“Meanwhile the 50 basis point rate increase announced in January has already increased the monthly repayment on an average home loan approved at the prime rate by R249 – and the monthly earnings required to qualify for that loan by R850.”
 
And if rates rise by just another 100 basis points this year, he notes, the monthly repayment on an average loan will go up by a further R509, while the salary required to qualify will need to increase by 11%.
 
“This is without any further increase in house prices, which seems unlikely, and is alarming in the light of the fact that the latest salary trends survey by leading human resources company ECA International shows that most employees in SA can anticipate a wage or salary increase of just 7% this year – or 1% after inflation.”
 
So the message is clear, Rademeyer says. “Those who have been sitting on the fence waiting for the ‘best’ time to buy should make a move to do so as soon as possible or they could quickly find themselves priced out of the market.
 
“However, they should also be very careful to allow for a 1 or 2 percentage point rate increase when they are deciding what to buy - which in most cases will mean buying a smaller, less expensive property, or paying a substantially higher deposit.
 
“Just how much cheaper the property should be, though, or how much bigger the deposit, is something prospective buyers should work out with a reputable mortgage originator like BetterBond before they go househunting, because there is a real danger of overbuying with the market in its current state of flux.”


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