Municipal rates are set to become a much bigger factor in home affordability calculations — and in the buyer’s choice of suburb.

So says Johalna Minnaar, Gauteng North regional manager for the RealNet property group, who notes that the imminent rates increases may well affect homebuyers’ ability to qualify for loans under the provisions of the National Credit Act.

In order to prevent applicants from becoming over-committed financially, the NCA requires that not only all credit commitments, but also all regular and projected household expenditure be taken into account when a potential buyer applies for a home loan.

“The municipal rates payable on a new property are included in this calculation and if they would put the buyer beyond his affordability limit, he would probably not be granted the loan. And this may well be the case more often once rates are raised,” Minnaar says.

Rates are generally raised in June or July and are expected to jump substantially in many areas this year following the revaluation of properties to comply with the new Municipal Rates Act.

“Indeed, rates will soon account for an even bigger chunk of homeowners’ monthly expenditure and so could end up being quite an impediment to homeownership,” says Minnaar.

“However, there is another, positive, side to this. Because the rate increases are expected to be smaller in some areas while in others rates could actually decrease once the new system is applied, the desirability of areas with lower rates is likely to be much enhanced.”

She says that potential buyers who are currently house hunting in upmarket areas, for instance, may well turn their attention to more downmarket areas if it means they can qualify for a loan. This, in turn, could give these areas a new lease of life with a spate of additions and alterations to make their new homes meet their original specifications.

“Areas with lower rates are also likely to be singled out by young, first-time buyers as well as the elderly on fixed incomes and it is clear that rates are shortly going to play a much larger role in all homebuyers’ choice of location.”