I was rather horrified to see a woman from a top estate agency firm on TV recently, telling viewers that they could now buy that property they could not afford a month or so ago, because interest rates had fallen. She gave an actual example in terms of the income needed to qualify for a home loan and how this income requirement would now be less due to the interest rate drop. So her advice was to go and buy that (previously affordable) property now as you get financing.
It was possibly the worst advice I have heard anyone ever give and smacks of pure salesmanship. Interest rates have been cut by 2,25% over the past few months in an attempt to stop the financial devastation caused by the lockdown and Covid-19 virus. Many people are unemployed, or hanging onto their businesses by a slender thread, and these interest rate cuts are intended to provide some relief.
On the other hand, there are those that are still working and earning an income, and these are the people who may be able to buy that property that they couldn’t afford a few weeks back. Just remember why interest rates have been cut and be sure that they will increase again in future. So committing yourself now to a repayment that may become affordable in future is just plain suicide. This is true for smaller purchase also where you will incur debt.
If you are in the market for a new property wait until the situation stabilises in South Africa. This is the worst time to make any major purchase, as we simply don’t know what next month will hold. Also, property prices may be more negatively affected in the months to some as many landlords are taking strain with non payment of rentals during lock down and (unfortunately) some people may be forced to sell their properties in order to survive financially.
If you have extra cash in your budget as a result of interest rate decreases, put this money into a bank account – add it to your emergency fund, or use it to start an emergency fund if you don’t have one. Make sure the money is easily accessible in case of an emergency.
These are uncertain times and being conservative is the wisest advice anyone can give you. Minimise your spending, save what you can, and never ever get yourself into more debt, just because the repayments are a little easier!