Interest Rate Hike - Revalue your property
With the current upward outlook and movement on interest rates, home-owners may be wise to take advantage of the run in property prices to negotiate lower mortgage rates, thereby holding their repayments at around the same levels as recent months.
Barry Kaganson, MD of leading valuation firm Valuation Alliance explains: Having ones home re-valued allows the lending institution to reassess their loan to value ratio (the value of the outstanding loan as a percentage of the property value), and hence re-price the loan accordingly.
Homeowners who have not had their homes re-valued in many years should take advantage of the current competitive mortgage lending environment switching of home-loans is becoming commonplace, and banks will price competitively, especially with a lower loan-to-value ratio (LTV).
A lower LTV implies less risk for the bank, which translates into a lower required return on the loan. Kaganson cites an example to illustrate his point. Consider an individual who purchased a home in January 2002 for R500,000 and took an 80% mortgage at the time. Based on the ABSA House Price Index, that home would today be worth around R1.2million.
As a percentage of property value, that 80% mortgage in 2002 has become a 33% mortgage in July 2006! This percentage could be reduced further, depending on the level of capital repayments over the holding period. Mortgage lenders should be vigilant in requesting a review in their lending rates based on this increase in value. One cannot motivate this based on a generic House Price Index; therefore a thorough independent valuation of the property is required.
Kaganson explains a similar opportunity for owners of commercial properties. Rentals have increased significantly in many areas over the last few years commercial property investors could have signed new leases with tenants over the past few years at higher rates since initial negotiation of lending facilities they should certainly consider using these to their advantage to try renegotiate borrowing rates.
With regard to new property purchasers Kaganson advises caution when
assessing a commercial property investment: Stress test your valuation
if the investment works for you at a required yield of an additional
few percent over the current benchmark the investor can
absorb a few more upward interest rate adjustments.
For more information contact:
Article by: Valuation Alliance - Barry Kaganson - Cowley Nel & Associates - www.eprop.co.za