Buying your first property: 3 considerations before signing on the dotted line
Buying a property is a massive part of your financial journey and will have long term implications.
After much deliberation, conversations and research, you reach the point where you feel you are ready to be buying your first property. Well, thats exciting! This decision is a significant part of your financial journey and will have implications for many years to come. Here are three considerations before signing on the dotted line.
1. Interest rates and economic outlook for South Africa:
Interest rates being at a record low over the past few months in South Africa has led to a number of first time home buyers entering the market. Debt/ home loans are cheaper than what they have been in a long time and this has brought a big shift, from many renting a property, to owning one. For a lot of individuals, the maths made sense. They could repay the bond at the same rate (or even less) than their monthly rental cost.
However, our reserve bank has projected a 0.25% increase in interest rates for every quarter in 2022 and 2023. That means what youre paying on your bond is going to increase slightly every three months for next year and a bit!
2. Qualifying vs affordability
Understanding the difference between qualifying for a bond and being able to afford it over the longer term can make a massive difference in your financial future. To summarize, just because the calculations and checks, done by the bank, show that you qualify for a bond doesnt mean you can afford it on a month-to-month basis.
We all have financial obligations beyond the credit report such as medical expenses, insurance, child-care, and tuition costs. Not to mention dreams and aspirations like traveling, hobbies, education, and retirement (some day!).
Affordability is determined by considering these many factors that make up your financial picture. Affordability largely considers whether you can sleep at night, whether you are comfortable with your home purchase and making sure that your home fits into your familys priorities.
3. Once off costs
Apart from the monthly bond repayments, you have to keep in mind these additional expenses incurred when purchasing property:
- Bond registration and transfer costs: based on a purchase price of R 1 million with a 100% bond, the total bond cost will be approximately R 25 088 and total transfer cost R 24 891.
- Moving costs: once youve bought your new place, there can be expenses included in relocating your furniture and household items.
- Utility bills: if you are buying a free-standing property, you will need to register for your water and electrical connection.
- Rates and levies if you have purchased a free-standing property, rates and taxes will be determined on the value of your property and area. If you have bought into a sectional title apartment block, the body corporate will set a levy to pay each month for the upkeep of the building.
Well done! Youve made it to the end.
But you may be feeling overwhelmed by all the considerations you have to make. Ive noted two ways to help you work through it.
Two ways navigate these increases + associated costs?
- BUDGET BUDGET BUDGET:
It is advisable to consider and budget for possible interest rate increases over the rest of the year. While lower interest rates can provide a break in the monthly budget, once rates increase, it can have the opposite effect.
2. FINANCIAL COACHING:
Financial coaching can be valuable at the time when you are starting to make these types of decisions. As your coach, Ill help you unpack key considerations such as:
- Are you ready financially?
- What should you be considering?
- Would you be better off financially if you were to rent?