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Cape Town – Buying property is a big decision that needs a lot of research before one embarks on it, according to FNB Home Loans CEO Marius Marais.
Marais mentioned three key aspects that affect one's decision when buying property. These are interest rates, affordability and emotional and psychological effects.
According to Marais, generally, about 30% to 35% of a person’s gross monthly income goes into home loan repayments - a substantial amount of one’s budget. One also needs to take into consideration that there would likely be other deductions from your salary each month like tax, contribution to a pension fund and other financial commitments.
“One also needs to look at other expenses associated with buying a property such as rates, water and electricity”, says Marais.
“Firstly, one has to make sure that, in terms of your own expenditure battles, you are able to afford all the other expenses. That’s the calculation that each individual or family must do.”
Marais says it’s always interesting when - as part of FNB's own educational programmes - they sit with a prospective client, whose home loan had been approved, only to discover that the client has not really looked at the affordability aspect.
For the first time clients then realise that they may need to adjust their lifestyle to be able to afford to buy the house.
Interest rates
Affordability is really important when it comes to interest rates in the long term. “For some typical home loans - say R1m over a 30-year period at an interest rate of 10% - the monthly installment would be around R9 650. Now, if rates were to go up to 12%, that requires an additional R1 350 per month to make the monthly installment just over R11 000, not forgetting all the other expenses”, says Marais.
“If one started with 30% of your income going to property repayment and it goes up to 44%, it automatically puts pressure on any income or cash flow one may have. It could, therefore, sometimes be safer to fix the interest rate instead of facing increased installments every time rates go up."
Marais says fixing interest rates is all about timing. "At the present moment it's not really a good idea to fix the interest rate as we're still going to have rate increases, in my view", Marais says.
Marais says it's normally better when the rates are going down or reaching the bottom of the rate cycle as you save on interest payable on your home loan.
Emotional and psychological aspects
For both buyers and sellers there’s always an emotional aspect which comes after buying or selling a property, Marais said at a property industry conference held at the Val de Vie Estate outside Paarl. Sellers often feel like they have sold their property for too little. Buyers on the other hand, often buy above their affordability levels, because they didn’t do proper research.
For sellers, the best is to look at properties which have been sold in their particular area and see how much they were sold for. Sellers also need to do their research way before they decide to sell. This would prevent them from making an emotional decision. There are various online resources to provide information for both buyers and sellers doing their research.
In the end, banks can do all they can, but the onus still lies with two people: the buyer and the seller, Marais concludes.
