The recent fall in mortgages indicates that home buyers are thinking twice before pushing their financial resources to extremes. However, according to JP Dippenaar, Maxvest CEO and Fine & Country licensee, many homeowners still make classic mistakes when they buy property.

Buying in the wrong area is a grave mistake. “If one asks homeowners whether they believe house prices in their area will rise faster than the average across the country, the vast majority will reply ‘yes’. However, it is not possible for all areas to beat the average, because the average reflects the market as a whole. Thus, some areas will outperform others. If a person buys a house in the ‘wrong’ area, they will see limited house-price growth in years to come,” says Dippenaar.

Dippenaar continues by saying that it is better to buy the worst house in the best area than the best house in the worst area. “This is because you can improve a single house, but you cannot upgrade an entire neighbourhood,” comments Dippenaar.

Not putting down a deposit is the second mistake people make. “With a 100 percent mortgage you borrow all the money you need to buy a home. In essence, this means that you don’t own a single brick of the property. Everything is owned by the bank,” says Dippenaar.

Furthermore, a deposit could save you thousands in interest. For instance, on the purchase of a house of R750 000 one can pay up to R1 295 000 in interest. With a 10 percent deposit, this interest can be reduced to R129 000. And if one pays the deposit, but continues to pay the installments (as if there was no deposit at all), one can save a staggering R535 000 in interest.

Dippenaar advises homeowners who are unable to pay a 10% deposit on a home that they are interested in, to reconsider buying that particular home.

The third huge mistake often made, is borrowing too many times over your salary. “Under the new National Credit Act, 30 percent of a person’s gross income can be spent on a mortgage. For a 20 year mortgage, this implies that a person can buy a property twice the amount of their annual income,” says Dippenaar.

Unfortunately, people do try to find a way around this limitation. However, the danger in this lies in the increasing interest rates. When interest rates go up, a person needs to have enough room in his or her net income to keep up with increased mortgage payments. When a person buys over the limit, there is usually very little room for movement.

The fourth mistake is buying at the top end of the market. “This is because one will enjoy poor returns when buying at a time when prices are high and the trend is down. This is especially true if a person is taking a mortgage on their property. That does not mean that there are not bargains out there, but that they are harder to find. A basic principle to remember is, buy low and sell high,” says Dippenaar.

Dippenaar concludes by saying that it is always a good idea to invest in property but that a person does not necessarily have to buy a property in order to invest in property. There are other mechanisms and products available that a person can make use of, such as syndications and fractional ownership initiatives.

However, whichever mechanism a person decides on, timing will always be of essence.

For information on Fine & Country’s syndication opportunities visit www.fineandcountry.co.za.