The decision to buy a property is often fraught with uncertainties, and one of the critical factors influencing this choice is the prevailing interest rates. In Port Elizabeth, the current market conditions raise the question: Should you buy now, or wait for the interest rates to come down?
Reserve Bank governor, Lesetja Kganyago, recently emphasized that there are no certainties regarding when or by how much the interest rates will decrease this year. Waiting for interest rates to drop might seem like a prudent strategy, but it comes with its own set of challenges. Once the interest rates start declining, the market is likely to witness increased competition and subsequently higher property prices. Therefore, the present scenario may indeed be an opportune time for property buyers in Port Elizabeth.
The current downturn in the market works to the advantage of buyers, despite the prevailing higher interest rates. According to industry experts, the subdued price growth over the past few years has led to historically low property prices. Buyers now have the potential to secure properties at prices comparable to those of two to three years ago.
In a seller’s market, increased demand from buyers tends to drive property prices higher. Conversely, a buyer’s market, like the one currently observed in Port Elizabeth, offers fewer buyers, a larger inventory of properties to choose from, and reduced competition. Motivated sellers are also more willing to negotiate their asking prices, creating an ideal scenario for buyers.
Property experts suggest that seizing the opportunity to buy in a downmarket can yield significant upfront savings due to lower prices. Furthermore, as the market eventually recovers, long-term value growth becomes a possibility. The adage “buy low and sell high” holds true, emphasizing the importance of securing good value during market downturns.
Waiting for interest rates to decrease before making a property purchase may result in paying more for the property. Affording a property at the current interest rate could mean acquiring it below its peak valuation. Subsequently, when interest rates start decreasing, buyers can benefit from reduced mortgage loan repayments.
While predictions indicate potential interest rate cuts of 0.75% to 1.0% later in the year, the timing and extent remain uncertain. Standard Bank forecasts four cuts of 25 basis points each from around mid-year, possibly bringing the prime rate down to 10.75% by the year’s end.
The current market conditions also provide buyers with a broader selection of properties. Properties take longer to sell, putting additional pressure on sellers who may need to sell promptly, thereby increasing the bargaining power of buyers.
Additionally, mortgage lending conditions remain favorable, resembling pre-2008 Global Financial Crisis levels. Despite a slight decline in mortgage loans granted last year, approvals still maintain their strongest rate since 2008. Deposit requirements, crucial for aspiring homeowners, remain below 10%, the lowest in over a decade.
However, prospective buyers must navigate potential pitfalls to ensure a smooth path to property ownership. Maintaining a healthy credit score is paramount, as a lower score decreases the chances of bond approval and results in higher interest rates. Avoiding additional debts and paying off existing ones improves affordability, a key factor in securing a higher home loan amount.
A stable employment history is crucial for loan approval, with financial institutions typically requiring around 6-12 months of consistent employment. Changing jobs or being retrenched just before applying for a home loan may hinder approval, emphasizing the importance of job stability for aspiring property buyers.
The decision to buy now or wait for interest rate drops in Port Elizabeth requires a careful evaluation of the current market conditions, potential future scenarios, and individual financial circumstances. While waiting may seem tempting, the unique opportunities presented by the current downmarket should not be overlooked by astute property buyers. Monitoring spending habits and making informed financial decisions now can significantly impact future bond approval and pave the way for successful property ownership.
