There is no doubt that times are tough. The ongoing Russian-Ukraine conflict, soaring inflation and depressed growth prospects continue to put affordability for housing under pressure, especially in the face of rising interest rates.
The Bank of Namibia (BoN) has this month once again increased the Repo rate by 75 basis points from 5.50% to 6.25%. Economic analysts have also predicted that BoN will announce another rate hike before year-end. And it is expected that rate increases will continue into 2023.
The housing sector is the most inflation-sensitive sector of the economy, so an aggressive rise in interest rates has definitely been felt by bondholders and aspirant homebuyers. Higher interest rates have an affordability effect on buyers because the cost of home loan finance increases.
This means that home loan repayments will increase for existing homeowners and new buyers. It also impacts sellers because lower demand and fewer buyers mean that asking prices will be under pressure. Sellers will need to be more careful about how they price their properties.
While the honeymoon period for first-time buyers seen in 2020/2021 shortly after the lifting of lockdown restrictions as the interest rate dropped to a record low, it is now over. There are still opportunities for aspiring buyers and investors, despite the challenging prevailing economic conditions. It would be a good idea to consider buying smaller, less expensive properties now or purchase a property with a flat for rental income to help with the bills.
If you have the financial means to do so, pay extra into your bond to reduce the interest payable over the loan period. Create a savings buffer, so you have the financial reserves to manage rising prices – fuel, food and bond repayments – if necessary. Look at your household budget and cut costs to reduce monthly expenses.
If you can no longer afford to pay the monthly installments, you need to notify the bank and contact a real estate agent to get the property on the market as soon as possible.
You want to sell the property as quickly as possible to recover costs and settle with the bank before they take the legal steps that put the foreclosure process into motion.
Working with an estate agent will ensure the property is priced right for the market, which helps ensure a faster sale and may help minimise losses. In cases where there is equity in the bond (the property is worth more than the outstanding loan amount at the bank), selling quickly means there is a chance of covering both the outstanding bond and other debt with the proceeds from the sale.
The current inflationary environment and recent substantial interest rate hike (the highest in almost two decades) is a strong reminder that affordability should always be a key consideration when buying a home. This is especially true when rising unemployment, fuel costs and wage demands could constrain economic growth.
Be clear about what you can afford to pay each month, factoring in your household expenses and the cost of maintaining a home.
For enquiries text, call or email #yourhomegirl Justina Hamupembe at +264812726001 or email: justina@chili.com.na
