Planning realistic [repayments

Press, 10 February 1988, Page 57

Planning realistic [repayments

By the Real Estate Institute It is always important, particularly in these times of high interest rates, for prospective home buyers to take a close look at what they are letting themselves in for in terms of interest and repayment of loan money. Lenders seldom provide first mortgages on more than twothirds of their valuation, which may not be as high as the price paid. The lender’s valuation is their idea of what the property is worth as a loan risk. The remainder of the purchase price must be met by the buyer. If they have not got sufficient cash to fill the gap, they

must rely upon raising further money at a higher rate of interest. The contracting of excessive debts on housing commitments is not encouraged by the Real Estate Institute. Agents used to maintain that a reasonable guide was not to exceed 25 per cent of the household’s income, excluding overtime and any other nonpermanent income for the payment of a mortgage and interest (or rent). However, it is no longer true that earnings from regular overtime will help pay off the mortgage because employment conditions have changed, with both overtime and even job security

now rather more uncertain across a wide range of industries and vocations than was the case in the “golden years” of employment in the 19505-19705.

Due to the economic uncertainties and to social pressures on single income families, real estate agents suggest to people of limited financial means that initially it might be better for them to seek a less costly home to try to avoid financial worries and then trade up when their fortunes improve. Alternatively, the homeseekers can purchase at low cost a property which can be developed and improved as savings permit.

One redeeming feature in

committing one’s self to substantial, though not excessive, mortgage payments is that if wages and salaries keep rising as they have been for many years now, the proportion allocated to loan repayments becomes lower with each increase in wages.

It should be borne in mind that those who buy on a low deposit must of necessity borrow a greater proportion of money. But even the present great demand for home ownership should not encourage a prospective buyer to over-strain their financial resources. The purchase of a home of your own is a good investment so long as you do not bite off more than you can chew.