While Generation X consumers, who are between 31 and 45 years old, are still driving the property market in most sectors, it is the up-and-coming Millennials who are the future home buying force. However, this younger generation, who are 30 years old and under, have some challenges to face in the current market.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that many Millennials are in the process of starting their careers and have large student debt that they need to pay off. As a result, it may take some time for them to get on their feet and build up the necessary savings to purchase their first property. “For some the idea of saving for a home while paying rent and making student loan payments is daunting to say the least. Although it might be impossible for some at this stage, for others it could be a matter of having the discipline to make certain sacrifices and set aside money rather than spend it,” says Goslett.
He adds that for the majority of Millennials, as with most first-time buyers, the biggest hurdle to overcome is getting together the money for the deposit, especially considering that banks are asking applicants for between 10% and 30% of the property’s asking price to qualify for finance.
Deposit
According to Betterlife bond application statistics, the average deposit percentage required by first-time buyers during the month of June was 21.17%. Considering that the average purchase price was approximately R860 000, that equates to a deposit amount required of around R182 000 – not a small feat.
Goslett says that the best way to accomplish big goals is by starting small and remaining consistent. “Mountains are climbed by taking one step after another. While the thought of saving an amount as large as R182 000 may seem like a massive deed for a younger buyer, it can be achieved by breaking the amount down into smaller, more manageable goals. Even if it is a matter of starting out setting aside small initial amounts – just get started,” advises Goslett, “the sooner, the better.”
He adds that the amount can be increased at a later stage, but it is important to get started and remain consistent, putting money aside every month.
A good way to save
Ideally, the best way to set a monthly savings goal is to find the difference between your current rental payment and the estimated bond repayment, which should include other monthly costs such as bond insurance, homeowner insurance, rates and levies. If possible, the difference should be set aside as savings. “The benefits of this strategy are twofold,” says Goslett, “firstly it will build up your savings, and secondly it will help you to adjust to the anticipated cost of owning a property.”
According to Goslett, this method of savings will provide the buyer with some insight into whether they are actually financially ready to own a property and what they can afford. If they are able to meet their savings goal consistently, then they will know that they are in a positon to purchase a property within their budget. Buyers, who are struggling to meet their monthly savings goals, might need to adjust their housing budget and bring it in line with what they can realistically afford.
A visual dream board with a picture of the type of house that the buyer wants to purchase will help to keep them motivated and on track. “It is important to be reminded of why you are doing without certain things, and putting away savings. A visual image will be a daily reminder of the end goal,” Goslett advises.
Finding the savings
The first place to look for savings is the property you are renting. Goslett says that if the rental is more than 30% of your monthly income, then it is too much. “While it might mean scaling back, consider moving to a more affordable rental property. It doesn’t make sense to spend more money on a rental home, if it is holding you back from owning your own property,” he says.
Finding more savings will require the potential buyer to assess their current spending and scrutinize their every expense. “Money can be saved by making a packed lunch every day, instead of eating out. Other ways of saving include cancelling that gym contract and finding ways to exercise for free or travelling to and from work in a lift club. There are a number of ways to cut back on spending, it just takes some creativity,” says Goslett.
The right time
There is the concern that while Millennials are building their savings, rising home prices and interest rates will make it more and more difficult for them to get onto the property ladder. While there is merit to the concern, it is best not to rush into buying property until you are completely ready. “Even if it means paying a slightly higher price at a higher rate, it is best to have a solid financial foundation and be confident that you can make the commitment that homeownership requires,” Goslett concludes.
