"Homebuyers need to be particularly careful not to stretch themselves financially during this period of low interest rates, as they could find themselves in difficulty should rates rise again," warns Bruce Swain, regional director of RE/MAX of Southern Africa. "We urge buyers to consult with their financial partners and agents to determine their own comfortable affordability bracket."

The hidden costs involved in buying a home can come as a shock to buyers entering the property market for the first time. Many first time buyers naively gauge affordability by the selling price of the property, little realising the additional 'extras' of transfer and bond costs and other expenses, which can add considerable stress to their ability to pay their bond.

For example, a recent Absa residential property review showed the average price of a medium-size, pre-owned home to be around R500 000. On such a property a 90 percent bond at an average bond rate of 10.5 percent would require a monthly payment of R4492. The 10 percent deposit on the R500 000 bond would require R50 000 produced upfront, together with transfer duty and bond costs of approximately R29 740 and R4218, adding up to a tidy sum of R83 958.

In order to accommodate the repayments on the 90 percent bond, the buyer would need to earn a monthly income of R15 000. This is long before the additional costs of removal, furniture, curtaining, fittings and insurance is added.

Maintenance, improvements, taxes and insurance are all costs that are added to monthly house repayments. Levies in townhouse complexes and apartment blocks are also common and can be as much as 25 percent of the monthly bond repayment.

No more cuts on the way
Market players predict that with the market slowing down, particularly in the higher price bracket, the recent interest rate cut is likely to be the last for some time.

"Buyers should not be tempted to purchase property simply because interest rates have dropped and bond rates are cheaper. Homebuyers need to err on the side of caution and work into their calculations the consistent servicing of the bond even if interest rates escalate by as much as three percent. The best advice is to always think about the worst case scenario and ensure you’re covered for all eventualities," says Swain.

A reliable rule of thumb to gauge affordability is that the monthly bond instalment should not exceed 30 percent of the buyer’s gross monthly income.

To ensure they are able to repay the loan on the purchase of their new home, buyers need to take three factors into consideration:

Possible increases in the bond rate

"An experienced and well trained estate agent will play a pivotal role in advising potential buyers on the financial implications of their purchase, pointing out the pitfalls to watch for and the hidden 'extras' to be aware of. For instance, buyers looking to renovate would be well advised to bring in a professional builder to examine the property before purchase to assess its potential and the likely cost of the renovations before the buyer is committed financially," says Swain.

Homebuyers need to be realistic about affordability and not be caught up in the excitement of the purchase. Swain recommends that even before looking at properties, buyers need to examine what they can afford, how much money they have available themselves, how much they are able to borrow and at what rate. Only once the financial groundwork is done, should buyers set out to find their dream home.

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