Buy now, or wait? Why now might be a great time for property buyers.

Should you buy property now, or wait for the interest rate to come down? As we heard from Reserve Bank governor, Lesetja Kganyago, there are no guarantees about when, or by how much, the interest rate will be coming down this year.

Once the interest rate starts coming down, buyers are also likely to face increased competition and higher prices, and now might well be a great time to buy property.

The current downmarket conditions are favourable for buyers. While the interest rate might be higher than what we would like, there is an upside for buyers. The muted price growth over the last few years means that prices are at a historic low, and you are likely to be able to buy at prices similar to what they were two to three years' ago.

When the property market favours sellers, more buyers enter the market and start competing for properties which drives up prices. In a buyer's market there are fewer buyers, more properties to choose from, and less competition.

Motivated sellers are now also more amenable to negotiating their asking prices. The ideal is always to "buy low and sell high". Securing good value in the market now could offer potentially significant savings upfront (due to the lower prices), and higher long-term value growth as the market recovers.

If you wait for the interest rate to come down, you will likely have to pay more for your property. If you can afford to buy at the current interest rate, you could find a property below its peak valuation, and can then benefit from a reduction in your mortgage loan repayments once the interest rate starts coming down.

The predicted interest rate cuts for this year are anywhere between 0.75% and 1.0%, but only later in the year. Standard Bank predicts four cuts of 25bps each from around mid-year which could see the prime rate come down to 10.75% (from the current 11.75%) by the end of the year.

Buyers have significantly more choice in downmarket conditions, usually because there are more properties on the market to choose from. It also takes longer for properties to sell which puts sellers under pressure, especially those who need to, or want to sell right now, thus adding more buying power.

Mortgage lending conditions remain at the best levels since the 2008 GFC. Although there was a slight decline in the number of mortgage loans granted last year, we continue seeing the strongest rate of approvals since 2008. Best of all, deposit requirements are still below 10% which is the lowest in well over a decade.

To help prospective homeowners prepare themselves for a future purchase, here are some outlined that spending habits to avoid ensuring future bond approval:

Don't allow your credit score to drop.

As difficult as it may be right now, aspiring buyers need to make sure that their credit score doesn't get marked over this time. It can take months and even years to clean up a credit score if you miss a payment or fall into bad habits with your repayments. Do whatever you can to ensure that all debt repayments are made on time and in full every month. Remember that the worse your credit score, the lower your chances of bond approval and the higher the interest rate the bank will provide on the loan.

Don't take on additional debts.

As tight as your household budget may be, try and avoid purchasing anything on credit at this time. The high interest rates make credit purchases incredibly expensive right now, but it also cuts into your disposable income. If possible, try to pay off as many debts as possible to increase your affordability levels. Disposable income is a key element to bond approval and acquiring a higher home loan amount.

Build up a stable employment history.

For those who plan on purchasing a property within the next year, it is important to know that financial institutions require a stable employment history of around 6-12 months. If you happen to be retrenched or decide to change jobs, your loan application might not be approved until you've been employed for a long enough period of time. If you can avoid it, try not to change jobs just before applying for a home loan. Rather wait until enough time passes before submitting a home loan application.   

While many first-time buyers might struggle to afford a home loan right now, monitoring their spending and making some smart financial decisions now will increase the chances of bond approval in the future. How they behave now will make all the difference to their ability to purchase property at a later stage.

There are many advantages to buying property in the current market. That said, buyers must ensure they are financially secure. It is also recommended that buyers get a formal mortgage pre-approval done which will put them in a better negotiating position.

Buyers should ensure they research the area in terms of prevailing selling prices so that they can make an informed decision.

The sooner you invest in property, the more you will benefit from the wealth accumulation factor. For example, those who bought during the last market downturn were likely able to net a handsome profit during the 2020-2022 pandemic-induced market boom.

Several price records were also achieved, especially in the 2021-year as price ceilings lifted in many areas.

Extract From Property 24