Advice and Opinion

Make sure your finances are in order before investing in property

Home loans

The next 12 to 24 months will be an excellent time to buy a home because there will be a wide choice of properties on the market and that will keep a lid on price increases.

“However, prospective buyers who want to take advantage of this opportunity should first take the time to ensure that their finances are in really great shape”, says Shaun Rademeyer, CEO of BetterLife Home Loans.

“The reason is that when evaluating a home loan application, the banks will not only consider your income and credit record, but will also look closely at your regular monthly household expenses and your existing debt repayment commitments. And at the moment, they not only want to see that borrowers will be able to afford their monthly bond repayments, but also that they could cope with higher repayments if interest rates were to increase.”

And there is a distinct possibility that they could start increasing from later this year, he explains, as a result of SA’s investment rating recently being downgraded. “The rand is worth less now in world terms, so we can expect higher inflation, which will probably mean that the Reserve Bank has to start raising interest rates again”.

“In addition, we can expect very low economic growth, which suggests more employment uncertainty and, for those who remain employed, low wage and salary increases despite rising inflation. It is thus going to become increasingly difficult for many families to make ends meet – let alone prove that they have sufficient discretionary income to afford a bigger bond repayment.”

In fact, Rademeyer says, fewer than half of those who are currently keen to become home owners are likely to obtain a home loan without doing some serious financial preparation first. “Even if they have a steady job and an excellent credit record, they should be doing whatever they can now to slash household expenses, reduce or eliminate whatever debts they have, and create cash reserves or savings”.

“Ideally, they should consult a reputable bond originator such as BetterLife Home Loans before they even start looking at properties to buy – and certainly before making any home loan application”.