Buyer advice: Start young and improve your financial future
Category Buyer Advice
Possibly the strongest motivation for young people to buy their first homes right now is the lowest interest rates in almost 50 years - which have not only lowered monthly bond repayments and made them more affordable, but also made it much easier to qualify for a home loan, provided you have a clean credit record.
And the message is getting through. Before lockdown, the average age of first time buyers in SA had risen to 37, but now it is coming down rapidly as more young people realise that paying off your first home in your 20s or early 30s instead of in your 40s can make a huge difference to your financial future and that of your family.
It could give you an asset that you can sell, rent out or use as collateral to borrow money so that you can afford tertiary education for your children, for example, or invest in further rental properties that will boost your income in retirement.
Alternatively, buying young could just mean that you are "bond free" by the time you get to your 40s, and have more financial leeway to do whatever you please, whether that is saving for retirement, or educating children, or travelling, or supporting your parents.
In other words, when buying real estate, sooner is always better than later, because even when they are rising only slowly, home prices do keep going up. Delaying a purchase will thus always mean that you need a bigger home loan to buy the same property - and a higher salary to qualify for that loan.
In addition, buying a home is the most efficient way for most people to start building up their personal wealth, and the earlier a purchase is made, the faster that will happen. You will gain more and more equity in your property as you reduce your home loan balance, and at the same time you will benefit as the value of the property increases.
What is more, putting any spare cash into your bond now will not only give you a much better return - tax free - than you can currently achieve in just about any other investment that is not much more risky. This is a habit that could also help you to pay off your home much sooner than expected - and save you hundreds of thousands of rands worth of interest.
If you have a bond of R1m at an interest rate of 7%, for example, and pay in an extra R1000 a month, you will reduce the repayment term by more than four years and save some R208 000 worth of interest.
And now, thanks to the growing remote-working trend, young buyers may not even have to go the traditional route of first buying a small apartment close to work and then moving to a bigger home as their family grows.
The technology that makes it possible to work from anywhere that has good cell phone and internet connectivity, also means that the first home you buy could now also be your "forever" home, in a coastal or country town that is (for now) still much more affordable than one of the big metros.
Author: Meg Wilson