Petrol price increases for South Africans

The South African Department of Minerals and Energy has confirmed that the price of petrol will increase by 37 cents – 40 cents per litre from Wednesday, 01 July 2009. For more information, please see the DME.

You can find the South African controlled product price forecast on Shell’s website.

Remember to take into account all these price increases while doing your personal budget when considering buying a new home.

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Repo rate unchanged and Electricity tarriffs increase

The South African Reserve Bank governor, Tito Mboweni, announced today that the repo rate will remain unchanged at 7.5% - i.e. the prime interest rate will remain unchanged at 11%. Economists had expected a rate cut of 50 basis points and were surprised by this announcement.

Eskom had applied for a 34% increase in electricity tariffs. Today, the National Energy Regulator of SA (Nersa) announced that it had given Eskom (state-owned electricity provider) a 31.3% tariff rise for the 2009-2010 financial year.

Eskom supplies about 95% of the country's power has been battling to cover cost increases while embarking on a five-year expansion programme. Later in the year, Eskom will submit another request for a tariff increase that will include a three-year period until the end of March 2012.

Consumers will be hard hit with the tariff hike, but the poor will be affected the most by these increases. Fuel prices are also expected to increase next month.

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How much can I afford to pay for a new home?

It can be a rather daunting and stressful task trying to find a new home when you are unsure how much you can afford. For a single person, the bank will grant you a home loan at a monthly installment of 25% of your gross monthly income, and for a couple it is 30% of their joint gross monthly income.

The normal term of a home loan is 20 years (240 months) but some buyers opt for a longer period, not exceeding 30 years (360 months).

Based on your personal budget, you will be able to see how much monthly disposable income that you will have to spend on buying a new home. Remember to take into account your current and future monthly expenses.

Currently, in South Africa the home loan interest rate is at 11%. If you are unsure whether or not you will opt for a fixed or fluctuating interest rate when you eventually buy your home, I recommend that you increase the loan rate by 2% - 5% when doing your calculations. You will see the benefit of this increased rate in a future article.

The mortgage calculator below will calculate your monthly installments.

Mortgage Calculator

	Loan Amount	R
	Interest Rate	%
	Term of Loan	years
	Number of Payments	months
	Total Monthly Payment (Capital + interest)	R

Your total monthly payment consists of a capital and an interest portion.

Visit your local bank’s website which should have various calculators available for you to use. I quite like Absa and Standard Bank’s maximum home loan affordability calculator of as it takes into account your monthly budget. The bank considers your debt-to-income ratio, which is a comparison of your gross income to housing and non-housing expenses.

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Am I ready to buy a home?

You have decided that now is the time you would like to purchase your own home when prices of houses have dropped due to the current worldwide economic crisis, but are you really ready to buy that dream home now?

Here are some factors to consider before purchasing a home:

Income

Do you have a reliable and steady source of income, namely a job? Have you been employed on a regular basis for at least 2 – 3 years?

Credit Health

A credit check will be done on you once you apply for a home loan. Do you have a good credit record? Do you pay your bills each month and on time?

Finances

What are your finances? To find out, do a budget. The budget will tell you what money is coming in and where it is going. It will tell you what are your needs, wants and can afford.

Other Debt

Do you have any outstanding debt like car payments or personal loans? Now would be a good time to consider debt consolidation. It makes no sense saving up for a deposit (with low interest rates) for a new home when you are being swamped with high interest rates on your current debt.

It would be wise to pay that debt off first, and save yourself money (on interest payments) in the long run. Have a look at your budget. You may have to make some sacrifices and any unnecessary spending will show up in this budget. Use that money towards your debt payments.

Home Affordability

From your budget plan, you will be able to see what money will be available for buying a new home.

You will need to pay a deposit of between 10% – 20% depending on your criteria and the bank that will grant you the loan. In addition to that, you will need to pay home loan costs. The home loan costs are: transfer fees, bond costs and the initiation fee.

It was announced this week that 3 of the top banks in South Africa are now offering 100% home loans.

Once you have bought a home, other costs will be incurred like home insurance, household insurance, security, home improvements, rates, water, electricity, etc.

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