Interest rates guidelines for first time home buyers

"With interest rates on the rise, some first-time buyers may be grappling with whether this is still a good time to buy a property in 2022,” says Zydah Manuel, Portfolio Manager First Time Home Buyers at Absa. And her point is valid.

Further increases in each quarter of 2022 up to 2024 are expected to account for inflation and other risks. However, this gradual rise in the repo rate will be sufficient to keep inflation expectations well-anchored and moderate the future path of interest rates, says the South African Reserve Bank Governor, Lesentja Kganyago. It is, in other words, all about the future, and for first time home buyers, who either own or intend to own property in the forthcoming months, there are questions about affordability and whether the market will be conducive for property investment.

“If we look at last week’s Budget announcement, Minister of Finance Enoch Godongwana announced some tax relief to boost investment and consumer spending. But, this also means consumers will need to review their budget to ensure there is affordability to purchase and maintain a home, and sufficient surplus to factor in the projected interest rate hikes and other associated homeownership costs,” says Manuel.

For those first time homeowners, who may find themselves financially stretched, it is concerning, but Absa has relevant solutions to support customers. For example, short-term payment plans on home loans allow for the monthly repayment to be reduced for 3 to 6 months, or the option of a long-term payment plan that extends the loan period by reducing the monthly repayment. “Terms and conditions apply,” says Manuel, “but consumers cannot wait until they are on the brink of financial collapse to engage these options.”

This is but one of the many common mistakes some first time home buyers make, along with not ensuring their credit record with credit bureaus remain sound.

So, is 2022 still a good year for first time home buyers to purchase a property, regardless of incremental interest rate hikes?

Manuel believes so, provided one’s financial circumstances and affordability allow for additional credit. Buying a home is probably one of the single-largest purchases many of us will make in our lives. As a customer, it is essential that one is realistic and works closely with one’s financial institution to assess affordability.”

However, the residential property market has remained resilient through Covid-19 and its lockdowns and is still very active. This means that most prospective buyers are still in a situation of realising the purchase of a home, but what they can afford is not necessarily what they aimed for, says Manuel.

“It helps that Transfer Duties are still exempted for properties below R1-million, and there is also the option of the FLISP government subsidy for first time home buyers, which is really an enabler for consumers to enter the market. This is excellent news for, for example, young families looking to move out of rental scenarios.”

Manuel also makes the point that some consumers may be the first generation in their family to enter university or formal employment and wish to provide a home for their extended family. “Entering the market as a first-time homeowner means you are engaging the potential to become a repeat buyer or property investor by diversifying into growing a property portfolio,” she says.

Absa is well geared to assist with the credit loan process associated with home loans, which is not as onerous as many first time homeowners imagine. Not only is there a number of educational and enabling pre-buying tools, but there are also a variety of home loan propositions to address the specific needs of consumers, and all are available on the Absa website.

First-time buyers may be eligible for a 50% discount on bond registration costs, preferential interest rates, and young professionals may obtain a home loan of up to 105% (terms and conditions apply).

Applications are made easy by applying for a home loan online on the Absa website, where speed and simplicity are assured for single or joint applications.

“But do your homework,” advises Manuel. “Make sure you have engaged the pre-qualification tool and the bond calculator; that you have an accurate budget that accounts for future hikes in costs; have a good credit history and score; and have knowledge and understanding, which can be acquired through Absa Knowledge Hub Centre. Ultimately, we want to help first-time homeowners enter the market and secure an asset for themselves and their families’ future. Our consultants are available on propertyhub@absa.co.za to answer questions and assist with the journey to becoming a homeowner for the first time.”

Courtesy of Private Property - Kerry Dimmer