Property: the love affair gone wrong

If you’re a Saffa, chances are you still believe that buying property is the best way towards financial security. Let’s face it, we do have a love affair with property – and until recently property seemed like the ultimate investment.

But, warns Maike Currie, a Saffa who edits the personal finance section of the Financial Times magazine Investors Chronicle, this love affair has turned sour when the property market suffered under the credit crunch and worldwide recession.

“While property prices are ultimately a function of demand and supply – the more people want property and the fewer places are available – the more the price will inevitably go up. The other part of the property equation, which many failed to recognise is that property is also a function of available credit. So, in other words, how much the banks are willing to lend you to buy your dream home.”

If you want to buy in the UK now, you have a problem because everyone knows that banks have taken a hammering and are not lending to customers at the rates or volumes they use to, says Currie.

But what is the bottom line? “If you are a first time-buyer hoping to get on the UK property market, chances are the bank will only lend you around 75 per cent of the total cost of the property. This means you will have to save/beg/borrow/steal the remaining 25 per cent to put down as cash. With the average price of a house in Greater London pegged at R352,355, you’re looking at a cash deposit of around £88,000 – rather steep, even for the big earners.”

There is always the option to buy back home for those not planning to stay forever on the Queen’s mud patch. “Your dosh will go much further - £88,000 at the current exchange rate will buy you a neat home.”

But ultimately, it depends on where you want to buy and what you can afford, says Currie. And you have to commit to a long-term affair. “Never rush into buying a property – it might sound glam, but it is a lifetime commitment – the average mortgage is set for anywhere between 20 to 30 years. That’s 20 to 30 years that you will paying off the property and the interest accrued.  Property cycles also take much longer than economic cycles to turn – so while the world economies might be looking up – it will take a while longer for property to get back to the heyday’s it enjoyed less than two years ago. That’s if it will ever get back to such buoyant levels.”

So what do you think? Send your advice to editor@sapromo.com