Property ownership is still possible; financial planning is key
Category Newsletter: Lead Article
The prevailing property market conditions for the past 18 months have greatly favoured buyers. The interest rate was at a record low of 7%, which boded especially well for those looking to purchase property for the first time.
Recently, but not unexpectedly, the ReserveBank's Monetary Policy Committee announced a 25 basis points hike in the repo rate, which now puts the interest rate at 7.25%. "While it is still relatively low, it does mean that consumers will have to tighten the purse strings and take a more stringent approach to managing their household finances," says Wilmot Magopeni, Leapfrog Sunshine Coast Franchisee.
But, he adds, would-be buyers should not be discouraged as there are still very good deals to be had and with a considered, strategic approach, property ownership is still very much possible.
Understand affordability
Magopeni says it is very important to properly understand affordability. "Affordability is ultimately determined by taking your incomes and expenses into consideration, levelled against the cost of the property plus interest."
There are a number of affordability calculators available online, such as this one by bond originator BetterBond, which calculates how much you can afford to spend on a month repayment each month, accounting for your income, expenses, the interest rate as well as the repayment term.
"Tools like these, and others like a repayment calculator, a deposit and savings calculator and even the additional payment calculator are very useful in helping one plan for a property purchase," Magopeni says.
A trusted property advisor is another great resource with the skills, experience and expertise to guide buyers (and sellers) on their property journey. "A property agent is there to help clients navigate this space and can offer useful advice and tips on how to plan for and ensure affordability," Magopeni shares.
Affordability is crucial but there are a number of other costs that also need to be taken into account when planning to purchase property, including:
Bond registration and transfer costs: This is the once-off cost paid to the conveyancing attorney to register the bond over the title deeds and is related to the loan amount. This can be quite a hefty cost but your property agent will be able to give you a clear indication of how much you can expect to pay.
Rates, taxes and levies: Determined by the value of the value, as well as the size and the area in which the property is located, rates and taxes are unavoidable as they represent the fees payable to the local authorities for waste removal and sewerage, and the tax payable on the value of the property. Take note that this is a recurring monthly expense.
Homeowners insurance: This offers financial protection in the case of damage or loss related to the property. Depending on the type of cover you opt for it may include emergency repair services or cover for temporary living arrangements in the event of the property needing to be evacuated. In the case of bonded properties the lender (typically the bank), may require that the homeowner has comprehensive insurance that covers the value of the property.
General upkeep and maintenance: An optional expense, if you will, but all properties require a level of upkeep and maintenance, and it can be costly. Though not necessarily a recurring monthly expense, it is helpful to take into account that there will be things around the property that will need to be replaced, repaired or kept in good nick over time.
Plan for peace of mind
As they say, forewarned is forearmed and this is certainly true when it comes to purchasing property. "Buying property is a hugely significant investment and the better one is prepared for it, the more likely it is to be a fulfilling experience. Being comfortable with the various associated costs is key to that fulfillment," believes Bruce Swain, managing director of Leapfrog.
Author: Leapfrog Property Group
