As interest rates tumble, this bodes well for low-income buyers to get a foot on the property ladder.
As interest rates tumble and property prices come under pressure in the months following the immediate Covid-19 health crisis, lower-income families could be presented with their best opportunity in almost a decade to become home-owners.
That’s the word from Gerhard Kotzé, MD of the RealNet estate agency group, who says that while the economic fallout from the pandemic will sadly see many people lose their jobs, those in the type of occupations that have been identified as “essential” during SA’s lockdown, such as nurses, paramedics, teachers, police officers and drivers (see the full list here), will most likely remain employed.
“This should help them to qualify for a home loan, especially since interest rates are already at their lowest levels in decades, and expected to fall further before the end of the year. As it is, rates have fallen by 2,25% since January, which means that the household income required to qualify for a R500 000 home loan, for example, has already declined from a maximum of about R19 300 to a maximum of around R16 400.”
At the same time, he says, the monthly repayments on home loans have become more affordable, falling from R4825 a month on a 20-year home loan of R500 000 to R4100 a month.
In addition, there is no transfer duty on pre-owned homes priced at less than R1m – and we foresee that prices will be extremely negotiable for the next 12 to 18 months. The primary reason for this will be that there is more stock coming on to the market at the lower price levels from distressed sellers and buy-to-let investors who have lost their tenants.
Kotzé says the banks are obviously going to be cautious about approving new home loans in the coming months and will be looking for those with good credit records as well as steady incomes.
“However, they will be lending, and what is happening in the market now is similar to what happened after the 2008/09 financial crash, which proved to be an exceptional opportunity for low-income buyers to enter the formal property market and start building up personal wealth. Apart from providing security of tenure, a home is a fantastic asset that you can also use, as you pay it off, as collateral to provide an education for your children, cover a medical emergency or make further investments. It also provides financial security for your retirement.
