First time homebuyers should exercise caution - top ten tips for the first time house hunters

First time homebuyers should exercise caution - top ten tips for first time house hunters

MortgageSA, South Africa's leading mortgage originator today warned that the slowdown in house price growth means first time buyers need to exercise a degree of caution when buying a home.

"With house prices growth expected to be 12% in 2006 and probably less in 2007, capital growth may not cover the interest costs of a standard 108% mortgage for the first few years", says Saul Geffen, Managing Director of MortgageSA. "That shouldn't scare you off, but it does mean you have to buy well," Geffen said.

The introduction of 108% bonds, which cover transfer duties and start up costs as well as the price of the property, have been a huge boon to expanding home ownership in South Africa. Many first time buyers are unable to provide a deposit and the 108% bond has got around this. And Geffen said it remains the case that banks are still very willing to lend first time buyers money and competition for new customers is fierce.

"Vigilance is what we recommend to first-time buyers at the moment. Make sure you have the headroom in your repayments to accommodate a possible interest rate rise, and shop around for the best deals," Geffen says.

MortgageSA's Top Ten Tips for first time buyers are:

1. Construct your own personal cashflow model and see how much you can really afford

2. Get information about all the costs upfront, levies, transfers etc. These can be as much as 8% of the cost of the property

3. Seek advice - reputable bond originators give impartial advice for free

4. Shop around - the lending market is competitive and there are many different products available. Don't jump at the first offer you are given

5. Strengthen your negotiating position by getting pre-qualified for mortgage finance

6. Check the title deeds to ensure there are no onerous title deed restrictions or servitudes

7. Get a specialist to check for structural defects or roofing problems before you buy. Also, pay attention to plumbing and electrics.

8. First time buyers should know the difference between occupation and possession. The change of ownership only takes place on the day that the transfer is registered at the Deeds Office

9. Look to maintain your level of payments if interest rates fall. Your bond originator will happily run the scenarios for you of putting away a bit extra every month into your bond repayments, and the effect this has of reducing the total cost of your loan

10. Putting a bit extra into your bond every month also turns your bond into a virtual high interest, tax-free savings account, since that money can be accessed at a later date for spending

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Financial freedom doesn't mean you have to win the lottery or a get an unexpected call from the executors of a long lost uncle's estate in Provence.

With stock markets in seesaw mode, the stability of property as an investment asset class has once again come to the fore. "House prices are expected to increase by 12% this year and while this may not be as high as in recent years, it still represents a good return" says Saul Geffen, Chief Executive of leading mortgage originator, MortgageSA.

As interest rates rise, homeowners have an even bigger incentive to invest in their bonds, as they will be saving even more interest while benefiting from the secondary advantage of a shorter term of repayment.

R 20 million for a three bedroom apartment in Cape Town's V&A waterfront may seem like a ridiculous sum to pay by South African standards, but it compares favorably with Sydney and remains significantly cheaper than upmarket apartments in other international playgrounds.

MortgageSA, South Africa's leading mortgage originator placing one in five mortgages, said that the possibility of a fixed mortgage system, currently being discussed by the Reserve Bank, could be a double-edged sword for consumers.