23 January 2017 – Buying your first home is very exciting and if 2017 is the year in which you plan to make this leap, ensure that you have done as much research as possible to make a good choice from both a financial and personal point of view.
“There are many factors that need to be taken into account when buying your first house which don’t only include the actual costs that come with a home,” says Albertus van Staden, head of credit for FNB Housing Finance.
It is imperative to have a grasp of the bigger picture when it comes to buying a home. Factors such as what is happening in the property market, the interest rates as well as in your own life. Understanding these aspects could make a big difference to whether your first home is a boom or bust.
What is happening in the property market?
According to the FNB House Price Index, the property market is currently stagnant with an increase of a mere 3% expected over this year in nominal value, although there are signs that the economy is improving.
“While you may not have paid much attention to the expected house price growth, this is something to take note of, because if house prices are stagnant it will take much longer for you to recuperate the full amount, this includes the costs related to the transaction should you decide to sell for any reason,” says van Staden.
For example, if your home cost R600 000 you would have paid around R29 000 in transfer, bond costs and initiation fees. If the property market only grows by the 3% and you sell at the end of the year, you are still left with a shortfall of R11 000. This is before you have even added the costs to cancel the bond and estate agent commission for helping you sell your property.
What is happening in the general economy?
Taking note of what is going on in the South African economy is important, as interest rates, inflation as well as expectations of the job market may have a direct impact on your home buying aspirations.
“Other expected changes, such as those in food prices or the cost of petrol can all have an impact on your pocket and affordability,” says van Staden. “So stress test your budget, which means assume that the cost of living will go up and see if you can still afford to pay the basics and your house cost.”
It is also important to have understood which industries are battling in 2017.
“If you are in an industry that is predicted to struggle in 2017, or is currently struggling, you need to be aware that you may not receive a bonus or salary increase, this will squeeze your disposal income,” says van Staden. “In extreme cases there may be the chance of retrenchment, so ensure that you have enough of a financial buffer for a period of say around three months.”
Be aware of your own personal circumstances?
The most important factors to take into account when buying your first home is where you are in your own life stage.
You need to ask yourself questions such as why are you buying a home, is it for investment purposes, security for you and your family and how long do you intend to stay? If you plan on living in your property for a long period of time, is it big enough should you want to start a family or want to upgrade later?
“Buying a home is a long financial and personal commitment,” cautions van Staden. “You need to be sure that you are in a space to be a home owner, because, if you take the example above, you will see that you don’t make money in the short-term.”
– Being in a good place financially; having a strong reserve of cash for a deposit and to show the bank you are able to save.
– Having a good budget in place which also takes into account any external increases throughout the year such as rates and taxes, food or petrol prices.
– Being settled – not planning a move for at least a few years
– Having financial discipline to pay for the bond as well as all the additional costs that comes with being home owners such as rates and taxes.
“Owing your very own home is a great ambition. If you are financially and personally solid, you will be in a good place to buy your first home this year,” concludes van Staden.