The recent interest rate hike of 0,5% was met with dismay by most property owners as well as first-time buyers last week. This hike brings the prime lending rate up to 13,5% - a 3% hike since June last year.
According to Tony Clarke, Managing Director of Rawson Properties, the worst might not be over yet. 'The Reserve Bank Governor, Tito Mboweni, indicated in a news report this week that pushing up interest rates is the only mechanism available to him to curb inflation. Until our inflation rate normalises, we can expect more interest rate hikes'
This is an important fact that especially first-time home buyers should keep in mind as they start looking around to purchase their new home. 'It is essential that these homebuyers must be conservative about the size of their bonds, resisting the temptation to extend themselves to their limits' Clarke adds that the focus should be on buying sensibly and lowering aspirations. 'First-time home buyers should remember that very few people buy their dream home on entering the property market. You start of small and build wealth by acquiring smaller units with large capital growth projections, enabling you to put down a large deposit on your dream home in a few years time'
'It is also essential in these tighter conditions,' says Clarke, 'for property owners to reduce their unnecessary spending, particularly credit card and store accounts. These were often signed up not because they were needed but because the financial institutions have flooded the market with credit opportunities' Clarke explains that these expense accounts could negatively influence a potential buyers credit profile, thereby making it very difficult to qualify for a larger home loan required for their dream house.
The most obvious solution for current home owners to protect themselves, says Clarke, is to ask their bank for a fixed interest rate option for the next two years, so as to avoid the possibility of large interest rate fluctuations. 'This would ensure that their current repayments wont become too high for them to meet'
Other options, says Clarke, includes to devise methods of earning income out of your property by taking in lodgers/tenants. 'The additional monthly income would help cope with the increased monthly repayments. However, be very cautious on who you select as a tenant as there are many horror stories out there of defaulting tenants that damage property and refuse to vacate the premises'
Buy-to-let investors who are now realising that they have over-extended themselves, might need to consider selling some of their units and using that money to pay off other loans in order to decrease their monthly repayments.
Contrary to popular belief, the higher interest rate environment coupled with the stricter measures of the National Credit Act, will not lead to a decline in property prices. 'The market has been stabilising for some time, however national growth will continue at double digit figures'
