If 2016 is your year to finally buy your first home, there are a few considerations to take into account before starting house hunting.
The problem with an upward interest rate cycle is that your home loan will become more expensive. With this risk, budgeting will be your strongest tool to get you through any interest rate hikes, says Van Staden.“Buying your first home will always be a big leap as it requires financial discipline and budgeting,” says Albertus van Staden, head of credit at FNB Housing Finance.
This will be even more pronounced in 2016 with South Africa facing a tough economic climate with the expectation of continued interest rate increases, inflation in food prices due to the ongoing drought, as well as increased import costs due to the weaker currency.
However, Van Staden says it is not all bad news - some of these factors could also work in potential homeowners’ favour.
Van Staden gives a few factors aspiring homeowners should keep in mind:
1. Make sure 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 more possible interest rate hikes would be to draw up a budget that assumes that interest rates increase by, for example, 2% over the next year,” says Van Staden.
You can work out the figures on a bond calculator.
2. 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,” says Van Staden. “Take an interest in the world around you and note 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,” says Van Staden.
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. You can either buy a smaller property, or really cut down on unnecessary expenses from the beginning of this year to build in a good buffer,” says Van Staden.
3. Get your credit record in order
“Don’t be tempted to take a short-term view,” says Van Staden. “Take an interest in the world around you and note the expected increases in food prices, electricity and rates and taxes in your area.”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,” says Van Staden.
“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.
But don’t be disheartened, 2016 is not all doom and gloom for first-time buyers. Here are some factors that will work in aspiring homeowners’ favour:
1. Time for bargains
In a tougher financial environment more homeowners will find that they need to scale down, which may work for you as an aspiring 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, and this includes market research into current house prices and suburb prices,” says Van Staden.
“You should be able to identify when there is something on the market that is worth buying and move on it quickly.”
2. Rising interest rates benefits 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.
“Raising interest rates mean that you will earn more interest on any savings that you have put away towards a deposit,” says Van Staden.
“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, and buying a home in 2016 has its own challenges as the economic climate affects almost every part of your own individual finances.
“This is why you need to ensure that you are well prepared for any eventuality when making the leap and buying your first home,” says Van Staden..
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