Tips for millennials who want to buy their first home
First-time home owners are likely to pay three times more than any generation before them
Millennials are likely to pay more than three times more on their first home than the generation before them, according to property information providers Lightstone Property.
According to Lightstone, inflation and living costs have changed significantly over the last 20 years. Also, the earnings potential and spending power of South Africans have been affected by various economic factors. Still, the average house price for a first-time home owner is three times higher compared with previous years.
Elize Botha, managing director of Old Mutual Unit Trusts, says most millennials entered the workforce during and after the global recession of the late 2000s and early 2010s.
“They have had to navigate a tougher global economic environment than previous generations — one of high inflation and unemployment, social and political unrest, and low economic growth. All of this contributes to their ability to purchase a house, but not all is lost,” says Botha.
Lighthouse data shows that millennials accounted for 103,853 of the 262,629 property transactions in 2018, amounting to a total (millennial) purchase value of R86bn.
If you have not yet entered the property market, here are some tips for overcoming the obstacles.
1. Start saving today
This is the most important piece of advice you can get. Botha says preferably start as soon as you earn your first paycheck.
Whether it’s in a savings account or a unit trust, you simply must start putting money away as soon as you can to benefit from the effects of compounding interest.
Botha says the recent Old Mutual millennial survey found that only 29% of respondents are saving towards a deposit on a home or immovable property but the Old Mutual Investment & Savings Monitor found that 36% of a sub-segment of millennials, dubbed RIFS (recently independent financially strapped), are saving to purchase a property.
Re/Max Masters sales associate Vera Hall, who has sold many a home to first-time buyers, says saving is definitely the priority, but it requires discipline and sacrifices on, for example, the number of times you eat out.
“Set up a debit order into a savings account, even if it is a small amount. Treat it like a monthly expense and before you know it you will have a deposit saved,” she says.
She says a minimum deposit by most banks is 10% of the purchase price. The larger the deposit the better the chance of a buyer securing a home as it is less risky for all parties concerned, Hall says.
2. When to buy
The recent recession has not been good news for sellers as economic downturns or tough periods tend to favour buyers. The best time to buy a house is during a buyers’ market.
Botha says you should only consider buying your first home if you have maintained a good credit record and have saved up at least 10% of the purchase price for a deposit. “If you have these, now is a good time to shop for something that meets your needs.”
But Hall advises millennials to buy as soon as they can afford to, to start building up investment equity.
3. Work towards a healthy credit record
It is often said that you need credit to get credit, and that having no accounts on credit means that you cannot be assessed for a big-ticket purchase such as a home.
“Simply put, your credit profile demonstrates your financial behaviour,” says Michelle Dickens, managing director at TPN credit bureau.
The great news, according to Dickens is that you can easily build your credit profile with your lease agreement — by paying your rent on time and in full every month.
Hall says your credit history will also influence the interest rate banks will charge on your bond.
4. Budget for more than just the instalment
Buying a house is not just about getting a bond.
Botha and Hall say as a first-time home buyer you need to consider the other costs that come with buying a property. This includes transfer duties, bond origination fees, home owners’ insurance, life insurance, household contents insurance, property repairs and maintenance.
Dickens agrees: “Budget for additional monthly expenses such as rates and taxes, levies and maintenance. Always negotiate the best possible interest rate with multiple banks and deposit any extra money you may have every month into your mortgage bond.”
So if 2019 is the year you want to own your first home, make sure to save, budget carefully, work on a good credit record and only buy when and if you are ready.