While COVID-19 has brought plenty of uncertainty into 2020, it’s also creating opportunities for those with an interest in property.
The ongoing global pandemic has changed the face of innumerable industries in South Africa. In particular, it has sent shockwaves through the property sector, flipping the market on its head and creating great opportunities for buyers and investors.
To stimulate the economy, the South African Reserve Bank cut interest rates four times in as many months. These cuts have reduced the prime interest rate from 9.75% to 7.25% – the lowest it’s been in more than half a century.
With the cost of borrowing directly and significantly influenced by the interest rate, this 50-year low interest rate means that bonds are more affordable. Those who are looking to renovate their homes and who might need to borrow money to do so might consider moving forward with those plans now.
While it’s unlikely that renovating will increase the selling price of your property in the current buyer’s market, it is a good time to consider renovations that increase the value for you as the owner. This could be a separate entrance unit for older parents, a kitchen renovation or even laying new floors to freshen up the space.
Owners who don’t have cash on hand can finance home improvements in a few ways.
First, where you have an existing home loan on which you’ve made payments, there is the option of readvancing the loan. This enables you to borrow the funds which you have already repaid with relative ease. In the same vein, you could apply for a second bond. However, this can only be done if the amount you require is more than the registered loan amount and the value of your property has increased since its purchase. You will also incur bond registration costs, making this quite a costly exercise.
The third option is to take a building loan. According to bond originator company ooba, a building loan is used “to finance the construction of a house on vacant land and renovations to an existing home”. While this type of financing is purpose-built for home improvements, you will need to provide your bank with a draft of the construction plans as well as a signed agreement between you and your NHRBC (National Home Builders Registration Council) registered contractor when applying.
Although rates are great at the moment, Craig Torr, Director of Crue Invest, cautions investors to look to the future and consider the affordability of loans when they consider renovations. “Borrowing costs are particularly low at the moment, which is an advantage – although there is no guarantee that it will remain this way. You should therefore be confident that you can meet your monthly repayments should interest rates begin to rise,” he says in a Moneyweb article.
Property investor Grant Smee agrees on this point. “It’s important to continuously revisit your goals and strategies. As we grow older, our appetite for risk changes, as does our financial independence. Do your due diligence and educate yourself. Rather than listening to various sources, find a trustworthy source of information and stick to your plan,” he adds.
With interest rates at record lows, homeowners have the opportunity to capitalise on the reduced borrowing costs. Whether this is to renovate your own home or purchase a new property, it’s essential that you invest wisely and keep in mind the affordability of the loan when future rate hikes occur.
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