Bond applicants should take account of the inevitable future rates increases, or they could suffer in future.

“With the interest rates at their lowest levels for some 30 years (the nearest we have recently come to the current levels was in April 2005 when the rate was 10,5%), home buying looks very attractive – and there is a renewed willingness to consider homeownership,” says Rawson Properties MD, Tony Clarke.

But, he warns that many buyers will assume that the current low rates will be maintained for a long time and, thinking this way, they may easily over-commit themselves on their bond payments, only to find themselves in trouble when rates do rise as they inevitably will.

“Today’s very favourable rates won’t last for ever. You only have to look at the interest rate’s recent performance to understand how regularly changes occur – since 1990 the rate has changed 63 times. Even more significantly, the average rate over that period was 16,4% – about 7% higher than the current rate.

“Two or three years from now interest rates could easily be at 14 or 15% again. It’s true that financial cycles never follow exactly the same patterns as before, but they do occur.”

So – what advice does Clarke have for eager buyers now making plans to become homeowners?

“Assuming that they qualify for bonds, our advice is to pitch the bond application as if the rate will soon be 13,5%. That is apply for a bond roughly 20% below the maximum value which the bondholder could now be given. Applicants can work this out with a good estate agent or mortgage originator. They just need to make sure that when rates rise, they won’t have a problem.

“For example, supposing the bond applicant has a sound credit track record and is a steady salaried employee earning R40 000 a month, he might qualify for a bond of R1 million. But we suggest that he applies for a bond of R800 000. If this means he has to opt for a cheaper area or a similar, less luxurious home, so be it. He can upgrade later.

“This is infinitely preferable to finding that the higher payments are causing distress when rates rise.”

Just how significant future interest rises could be, says Clarke, can be seen from the fact that at current rates a R800 000 bond would cost R7 546 a month. If the rates do rise to 13,5% this would rise to R9 656 – an increase of over R2 000 a month.

Clarke also repeated advice given previously, that if at all possible while rates are low, bondholders should pay more than the stipulated monthly rate and shorten the payoff period and build up savings nest eggs.

“Even a few extra hundred rand paid each month will shorten the payback period by years – and it will also reduce the time before an upgrade is possible.”