How to buy a home when interest rates are high

Buying a home when interest rates are high can present some unique challenges. With careful planning and expert guidance, homeownership is still an achievable goal and will prove to be an excellent long-term investment strategy for those who are able to afford the purchase.

Impact of interest rates on the property market

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa explains that buying a home when interest rates are high will present more opportunities to secure a well-priced home.

“When interest rates are high, there tends to be far less competition among buyers. This means that sellers are more likely to accept offers below the asking price, especially if there is no interest from other qualified buyers,” he notes.

The challenge is to make sure you can afford the purchase. To figure out how best to do this, RE/MAX of Southern Africa shares a few tips on how to buy when interest rates are high:

• Save for a larger deposit

When interest rates are high, you are likely to qualify for a lower amount in home finance, which means that you will have to save up some cash to make up the difference. This can be challenging, but there are ways to build up capital quickly. For example, if you own two cars within the family, consider selling one and use the cash towards the home. Not only will paying a more sizable deposit help with affordability, but a larger deposit will also help reduce the overall loan amount, which will lower your monthly instalments.

• Shop around for the best rate

Most financial institutions are willing to offer a rate below Prime to those with a good credit score. This becomes even more important when interest rates are high. To make sure you find the lowest possible interest rate on your home loan, shop around and compare quotes from various banks. This can all be done for you for free through a bond origination service such as BetterBond. They can also help get you pre-approved for home financing, which will help you shop with confidence, knowing what you can actually afford.

• Salvage your credit score

If your credit score is low, take a few months to improve it before you start house hunting. If you have other high-interest debts, prioritise paying them down to improve your overall financial health. Be sure to make all credit payments in full and on time every month, as failing to do so will count against you.

As a final word of advice, Goslett reminds buyers that interest rates fluctuate over time. “This means that interest rates may still go up a bit, but they may also come down. It is important to know what you can truly afford. The rule of thumb is that your home loan should never amount to more than around 30% of your gross monthly income. Once you have worked out that amount, speak to your local RE/MAX agent to start searching for homes within that price range,” he concludes.

Writer: Kayla Ferguson