Upgrade in time for the upturn

The rapid decline in the home loan interest rate since December and the resulting increase in affordability has set the stage invitingly for savvy homeowners to upgrade to bigger and better properties before prices start to rise again.

“The five percentage point drop in the mortgage rate to its current 10,5% level equates to an increase in affordability of more than 26%,” says Lew Geffen, chairman of Sotheby’s International Realty in SA.

“This means that homeowners who were able to afford the instalments on a R1m bond at the December interest rate of 15,5% could in most cases now afford a bond of around R1,35m.”

Property prices, meanwhile, have shown a decline of between 10% and 15% in the past year, which means that buyers can currently acquire even more home for their money when moving up the property ladder. “Indeed,” he says, “the total average discount since the market downturn began is around 30%.

“What is more, those who have taken advantage of the falling rates over the past few months to settle debts or to save are finding themselves in favour with the banks when it comes to obtaining new home loans, because they often have the cash available to put down a healthy deposit on a new home.”

With the market in its current state, Geffen notes, it follows that homeowners intent on upgrading will most likely have to sell their own properties for less than they could have got a year ago. “But any reduction they take on their existing home is likely to be heavily outweighed by the ‘discount’ on their new home – and they will be well set to enjoy proportionately greater gains when the market starts to turn upwards in a few months.”

However, he says that for homeowners to upgrade successfully, they should first secure the sale of their existing properties, and find out from a mortgage originator or their bank what size home loan they will be granted to buy their next home.

“There are some truly excellent opportunities to upgrade at the moment but it is important to know what you can spend before you go shopping. In addition, you will always be better received as a buyer, and able to negotiate more strongly, when you can make your offer to purchase without any strings attached.”

Article from: www.sothebysrealty.co.za