Budget for Higher Interest Rates

If you’ve ever been to sea on an ocean-going vessel you’ll know that the vessel, the crew, and the passengers are equipped for the worst event, not just the best.  It’s for that reason there are lifeboats and life jackets, and that special evacuation drills are performed.

When precautions are taken then, even in the worst of situations, the damage and risks are limited.  When it comes to ocean-going vessels, in most cases lives        are saved.

So what’s this got to do with real estate?  There can be no denying we live in 1.6_Glassglobeturbulent times.    It may appeal that there is relative calm on the worlds’ global markets today, but there is no saying what will happen tomorrow.  Just like the winds of a tempestuous storm, so world economies and global markets can change in a matter of hours.

We saw this happen in 2008.  The results were devastating for those who were not prepared.

We’ve all been watching the Greek economic issues with interest.  One moment they are talking of an imminent agreement – and the next minute talks have failed and the Greek economy is in panic.  The impact of world markets doesn’t take days to manifest itself – it takes hours, even minutes.

Whilst there is no need to panic, it’s important to take a conservative view when it comes to property investment, as it would with any investment.

Here are a few “life-saving” tips to prepare you in the event of a possible worsening economic climate:

  • Never over-extend yourself. Don’t purchase for the absolute maximum you can afford, even if the banks say you qualify for the finance.
  • Expect interest rate increases. There are many different opinions on when this may happen, but the general consensus is that increases are imminent.  Given the Greek issues it may be sooner rather than later – so don’t be surprised.
  • When considering your affordability, make sure you can cope with an apco-generic-credit-cardsinstallment even if the interest rate increases by 2%. It’s unlikely that it will – but if you still qualify at this higher interest rate you will be prepared for any sudden increases.
  • If you are able to, ensure your mortgage bond is an “access” bond of sorts. If you have spare cash then plough it into your bond as soon as you can.  With an access bond you can usually redraw the funds easily – but check with your bank on what products they have to ensure you can access the surplus funds.  If you are ahead on your installments now this will not only save you huge amounts on interest, but also give you access to your extra cash later in emergencies.
  • Take a medium to long-term view on property. Markets have cycles.  Never put yourself in a position that you are forced to sell, as that’s when you could incur a loss.

Property still remains one of the safest investments there is and is far less volatile than stocks and shares.  Keep a cool head, prepare for challenging and volatile economic times – and always remain in control of your own future.

Steve Caradoc-Davies

Principal, Harcourts Platinum

Director, Harcourts South Africa

steve.cd@harcourts.co.za

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