Budget when you need debt help If you find yourself in need of debt help and struggling to make ends meet, it’s likely that your budget (or lack thereof) doesn’t reflect your earnings. Budgeting can prevent getting kicked out of your house, increased debt as well as ruining your credit profile. It’s never too late […]
26 June 2014
With repo rates potentially going up at least twice this year (according to some experts) you may be reluctant to take the plunge towards purchasing a property. If repo rates do increase it will become more expensive to pay off a mortgage every month. So for those who are already stretching their income to afford their daily cappuccinos, renting is giving them the ability to watch from a safe distance the potential carnage one or two more rate hikes could inflict on homeowners this year.
But renting doesn’t mean you will be in the clear. If your landlord still has a mortgage on the property you are renting it is likely that he or she will up your rent if the repo rates go up too. “Buy-to-let investors who have financed their properties have also had the advantage of the interest rates remaining low for the past few years and are only now seeing rates increase. This could have a knock-on effect on the price of rentals in the near future,” explains Adrian Goslett, CEO of RE/MAX of Southern Africa.
If you want to be a home owner, there are a number of other hurdles to overcome. Gone are the days where you could grovel at the bank manager’s feet for a loan. These days it’s algorithms and other machinations that will deem whether you are worthy of a bond.
“Banks have had very strict lending criteria since the introduction of the Consumer Protection Act (CPA) and with the new Credit Amnesty bill now in play, it is likely that they will continue to keep a tight ship when it comes to assessing their financial risk and granting bonds,” says Goslett.
But this tighter regulation spells good news for you if you are a buy-to-let investor. “The rental market will continue to thrive and see a range of tenants wanting rental properties at market related prices – welcome news for investors with rental portfolios. The consistent demand within the rental market makes it easier for investors to find tenants in today’s market,” says Goslett.
Like being single, renting gives you flexibility. You can change your mind with very little notice (generally a month) and your lack of commitment means that if anything does go wrong with the property (such as a burst pipe) you are not the one negotiating with the plumber and other service providers.
Buying a home is a long-term commitment and if you aren’t sure of where you will settle, whether it is for employment reasons or a lifestyle change, it may be best to continue renting. Depending on the circumstances you may also find that you could rent a better property than what you can afford to buy.
But if you want to get onto the property ladder it’s important not to rent a home that’s at the high end of your affordability bracket. “If a consumer is in the situation that affords them the opportunity to save because they are renting, the money saved could be put away for the deposit or other costs involved in buying a home. It advisable to keep living standards at a level that allows the consumer to pay down their debt and put themselves into a better financial position,” advises Goslett. “Living within one’s means is the crux of the matter when it comes to preparing to purchase a property.”
If you are worried about the fact that you won’t be able to save once you have a home loan, Goslett points out that the advantage of buying a home rather than renting one is that it is a kind of forced saving. “Paying money into the bond every month is a way to ensure that the homeowner has an asset they can use later on in life. South Africans generally have a poor savings culture, so purchasing a home is a way to put money aside for the golden years. Selling the property once it has been paid off and downscaling will no doubt offer welcome financial relief when it is needed most. South Africans that have rented for their entire lives will have no asset to sell,” he says.
Goslett added that the secret to making the most out of a property purchase is to get into the market as early as possible. “It may be financially challenging initially, however assuming there are no drastic changes, a 20-year bond will decrease in real terms as the buyer’s salary increases, making the bond more affordable as time passes. Essentially this means that the sooner a buyer gets into the market, the better off they will be,” he says.
Regardless of whether you choose to rent or buy, both options have their own pros and cons. You need to evaluate your financial circumstances and make the decision that best meets your needs. “Renting offers the tenant a certain amount of flexibility before they make the long-term commitment, while buying a home can provide the owner with an asset to their name that will certainly show good returns in time to come,” says Goslett.
But once you decide to take the plunge, how can you ensure that your home loan application to the bank gets accepted? Goslett believes it’s all about sorting your debt out first. “Personal debt is still very much a factor that is holding many South African’s back from their home-buying dreams”. Those wanting to increase their property purchasing chances will need to focus on reducing debt levels and starting a savings plan to ensure that they reach their homeownership goal.”
Having too much debt that becomes unmanageable can stifle your hopes of securing the chance to acquire a long term investment. Using more and more loans to pay off existing loans has a negative effect on your total debt and this can lead you to a position where you cannot afford your repayments.
Securing home loans would definitely not be successful, and this often leaves consumers frustrated and disheartened. At DebtBusters, simple debt management solutions will get you debt free in a much shorter period of time than if you were to continue paying off substantial loans after loans and still not being approved home loans.
Clearing your record of all debts will fast track you towards being home loan approval, and you will be able to get that much desired house, which you can make a home.
To find out more about DebtBusters financial solutions, call 0869 99 06 06, alternatively fill out the form on this website and a financial consultant will call you back!
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