Property affordability under pressure; Denise Mhlanga, Property journalist at property24, 03 Mar 2014)

7 Mar 2014

If you are thinking of buying property and you have the money or the bank has granted you a loan, wait no more, buy now, he says, but cautions that buyers should allow for interest rate hikes of between 100 and 200 basis points this year.

While many had expected good news from the Budget, none of that happened, in fact, home affordability is under pressure according to Shaun Rademeyer, chief executive officer of BetterBond.
If you are thinking of buying property and you have the money or the bank has granted you a loan, wait no more, buy now, he says but cautions that buyers should allow for interest rate hikes of between 100 and 200 basis points this year.

According to Tony Clarke, managing director of the Rawson Property Group, an increase in interest rates is very real for would-be property buyers and homeowners having to repay home loan debts.
Clarke points out that even though the lower and middle income bracket homes remain a “sweetspot” for buyers thanks to their values holding up better than others, high interest rates will prevent many from buying property.

“Increased interest rates will make renting more common in future and will see the number of those blacklisted for non-payment of debts rising.”

He says hard as it is to save money, serious buyers will have to consider putting down sizeable deposits, pointing out that a 10 to 30 percent deposit on homes should now become mandatory.
Buying while one can afford it will also ensure buyers do not pay too much as high prices are also rising in some locations, says Rademeyer.

“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, he says the 50 basis point rate increase 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.

Rademeyer says if rates rise by 100 basis points, 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 percent.
“This is without any further increase in house prices, which seems unlikely, and it is alarming in 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 percent this year or 1 percent after inflation,” he adds. – Denise Mhlanga