Bond sensibly

You might be a little concerned about taking out a bond, especially since interest rates keep rising, but how serious are these hikes and can the new credit act save you from a lifetime of debt?

Rate hikes a reality?

"Many people, remembering only too well the 7.5 percent interest rate rises over a short two-month period in mid-1998 — after which they rose still further — are still concerned that an unforeseen interest rate hike could recur in SA," says Tony Clarke, MD of Rawson Properties.

“Any really serious rise in the interest rates now, does seem highly unlikely and the SA Reserve Bank (SARB) now follows a policy of protecting the rand both internally and externally.

"The SARB seems to be following a policy of raising interest rates slightly before this becomes absolutely necessary, in order to avoid a single large rate hike at any given time," adds Clarke.

"The average home buyer is, as the government intends, therefore in a fairly secure position," assures Clarke.

Credit crisis?

“It is also true however that many buyers are extending their credit to dangerous levels, as they have often been allowed to push the boundaries on their bond repayments.

"With a further oil price rise and a 0.5 percent (or greater) interest rate hike now looming, buyers must reduce their ‘unnecessary’ expenditure, particularly credit card and store accounts, HP and other debts," warns Clarke.

"And these are often signed up not because they are needed but because the financial institutions have flooded the market with credit opportunities."

Beyond your limits?

As a home buyer you should be more conservative about the size of your bond, and resist the temptation to extend yourself beyond your limit.

“The impact of an interest rate rise is sometimes not appreciated by home buyers,” says Clarke.

“Take, for example, a buyer with a R800 000 bond at 12.5 percent. Such a person is currently paying R9089 per month. A one percent interest rate rise would increase this to R9656 and a two percent rise would increase it to R10 240.

"Increases of this size could be a serious problem to someone who is already overextended,” warns Clarke.

The saving act

With the new credit act coming into play in June however, bond approvals are likely to be more difficult.

Clarke says that the more stringent bond approval process, will possibly not reduce the number of home buyers, but will force them to lower their aspirations and buy more sensibly than in the past.

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