Buying a home is a big financial decision and commitment, and not one that most arrive at overnight. With the year drawing to a close, many people are in the process of making plans for next year already including considering buying a house. It, however, is a process and we look at some of the steps that can be taken now to increase and maximise your ‘home buying power’ in the New Year.
“Prospective buyers need to start working on their financial profile as soon as possible to ensure that they stand the best chance of getting bond approval in the course of the year ahead,” said Debbie Justus-Ferns, divisional manager of Renprop Residential Resales.
The effects of the recent interest rate hike will be felt by consumers during the festive season and will impact the property market moving into 2016. The Reserve Bank has been warning consumers that we are currently in a rising interest rate cycle, and will be for some time.
Many experts believe that we are likely to see further rate hikes during 2016, which will continue to put financial pressure on consumers. Rate hikes will influence affordability ratios and make it more difficult for prospective buyers to gain access to finance, stated Adrian Goslett, regional director and CEO of RE/MAX.
The following are a few tips for prospective buyers ensuring they are financially and bond- approval ready:
-Build up your disposable income and stability
“Disposable income is possibly the single most important factor that banks take into account when determining a home loan applicant’s purchasing power. This means that potential buyers need to live within their means and work hard at paying down their debt in order to have as much disposable income available as possible,” explained Justus-Ferns.
She went further in adding that financial institutions also look at the risk profile of the industry and company in which the home loan applicant works in conjunction with their career history.
These factors are then slanted against the industry average. It is important that you show career stability.
-Budget well and service your savings
Budgeting properly is essential for any prospective buyer. “Having a clear picture of their spending habits will allow prospective buyers to streamline their finances and prepare for homeownership,” highlighted Justus-Ferns.
Financial readiness is a culmination of things like setting a budget, setting financial goals and importantly working out how much you can afford to pay on the bond monthly.
“Budgeting, however, also means making financial provision for life after bond repayments,” she added.
Building up savings to be able to put a deposit on the property that you want to buy is essential, as a deposit of ten percent of the asking price is usually asked for. Also, the chance of you being granted a 100% home loan is slim, especially in the current financial climate.
“I always suggest that young, first-time buyers save between five percent and ten percent of their monthly income. Aside from demonstrating good money management and having cash set aside for a deposit, savings will come in handy for the transfer costs as well as for when unexpected events happen that don’t fall within their budget. Saving a set amount each month is just generally a very sound financial habit,” explained Justus-Ferns.
-Make use of online tools
With the technological era we live in today, thereare a number of online budgeting and home loan repayment tools that prospective buyers can make use of to make their task that much easier.
Added to that, buyers should make use of online tools with bond originators to help determine what bond amount they’d be pre-approved for.
“Prospective buyers should bear in mind that pre-approval isn’t a guarantee that they will be granted a bond, or even how much they will actually be granted, but it gives them a very good idea of the price range they should be shopping in,” said Justus-Ferns.
-The details count
It is essential that buyers are as honest as possible about their income and expenses. “Any discrepancies will be picked up and may jeopardise the loan being granted,” revealed Justus-Ferns.
Buyers should also note that they need to be ‘SARS compliant’, ensure that the payslip submitted is correct and declare any assets and investments
What time of year is best to buy?
This all depends on the individual buyer and their financial situation. Regardless of the market or time of year, if a buyer still has high debt-to-income ratios and doesn’t have the required deposits, they are simply not ready to enter the market.
Buyers should consider whether they can afford and sustain the necessary financial obligation before making the commitment.
To precisely assess this, a buyer can use the resources available to them such as financial advisers, banks and bond origination companies, this will give the buyer estimated repayment figures based on bond requirements.
“As a general rule, monthly bond repayments cannot be more than 30% of total expenses and the majority of first-time buyers will be required to provide a deposit of between 10% and 30% of the purchase price of their home before being granted finance,” added Goslett.
Is the property market conducive with buying these days?
With fairly mixed messages and insights into the property market, Goslett is clear that it is “still a great time to buy. Interest rates are still low even if we are on an increasing cycle. Buyers should just account for an increase in repayments and budget accordingly.
“Stock levels are continuing to decline which will drive up demand and in turn drive up price. Buy in a good location and over the medium to long term you will almost certainly see a good and relatively risk free return,” said Goslett.
At the end of the day, being financially fit enough to purchase a house is essential, as buying and investing in a property is a big step towards “building up wealth as property is a long-term, appreciating asset,” stated Justus-Ferns.