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If 2016 is your year to finally buy your first home, there are a few considerations to take into account before starting your house hunt.
Buying your first home will always be a big leap as it requires financial discipline and budgeting.
This will be even more pronounced in 2016 where South Africa is facing a tough economic climate with the expectation of rising interest rates, inflation in food prices due to the ongoing drought as well as increased import costs due to the weaker currency. However, it is not all bad news; some of these factors could also work in potential homeowners’ favour.
Below are a few factors to note.
Make sure that your budget is rock solid
The problem with an upward interest rate cycle is that your home loan will become more expensive. With this risk, budgeting will be your biggest tool to get you through any interest rate hikes.
The best way to prepare for possible interest rate hikes would be to draw up a budget that assumes that interest rates increase by, say, 2%, for example, over the next year.
On a R500 000 house at 9.75% interest rate, a 2% increase will mean an increase of R676 a month in your home-loan repayments.
Other factors to build into your budget
Aside from the increase in your actual home loan, there will also be additional increases to factor into your budget.
Don’t be tempted to take a short-term view. Take an interest in the world around you and note of the expected increases in food prices, electricity and rates and taxes in your area.
Work out your household budget and what you currently spend on food. According to experts, food is expected to be 10% more expensive by the middle of the year.
This needs to be taken into account − if you currently spend R2 000 on groceries, expect this to cost you R2 200 by June, if not more.
All of these increases will affect you once you have bought your home, and could dent your affordability before you have had a chance to make your first offer.
If, with the proposed increases you can see there is even a small chance that you will start to struggle, consider reviewing your expectations, either buying a smaller property, or really cutting down on unnecessary expenses from the beginning of this year to build up a good buffer.
Get your credit record in order
The best way to save is to have a good interest rate granted on your home loan.
The only way to do this is to prove to financial institutions that you are a reliable customer who has a low risk of defaulting. This means cleaning up any bad debt you have, repaying your debt commitments reliably and showing that you can save, by having a deposit ready.
If you don’t have the above in order, it may be worth putting off your home-buying aspirations until you improve your affordability and your credit record.
It is not all doom and gloom; there are some factors that will work in new homeowners' favour.
Time for bargains
In a tougher financial environment more homeowners will find that they need to scale down, which may work for you as a new homeowner as the market may therefore weaken in the near future.
It is worth looking out for bargains in a softer market. You will need to do your homework before settling on your first home, this includes market research into current house prices and suburb prices.
You should be able to identify when there is something on the market that is worth buying and move quickly on it.
Rising interest rates – and saving for a deposit
While raising interest rates will make your home loan more expensive, it will also work in your favour when saving for a deposit.
Rising interest rates mean that you will earn more interest on any savings that you have put away towards a deposit. This means your money will work harder for you and put you in a better position when it comes to actually buying your home.
Buying your first home is a big step; buying a home in 2016 has its own challenges as the economic climate affects almost every part of your own individual finances. That is why you need to ensure that you are well prepared for any eventuality when you make the leap and buy your first home.
*Albertus van Staden is head of credit at FNB Housing Finance.
