Making some sacrifices now will help millennials save for a deposit

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-andcoming millennials who are the future home buying force.

However, this generation, 30 and younger, have some challenges to face in the current market, says regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett.

“Many people in this age group are in the process of starting their careers and have large student debts to pay off. It may take some time to get on their feet and build up the necessary savings to buy their first property.

“Saving for a home while paying rent and making student loan payments can be daunting. 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.

“For most millennials, as with first- time buyers, the biggest hurdle to overcome is getting together the money for the deposit, especially considering that banks are now asking applicants for between 10 and 30 percent of the property’s asking price to qualify for finance.”

According to Betterlife bond application statistics, the average deposit percentage required by first-time buyers during June was 21.17 percent. Considering that the average purchase price was approximately R860 000, the deposit amount required is around R182 000.

Goslett says the best way to accomplish big goals is by starting small and remaining consistent. While the thought of saving an amount as large as R182 000 may seem like a massive task for a younger buyer, it can be achieved by breaking the amount down into smaller, more manageable goals.

“Even if you just start out setting aside small initial amounts – just get started and the sooner, the better,” says Goslett.

“The amount can be increased at a later stage, but it’s important to get started and remain consistent, putting money aside every month.”

He says 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.

If you can meet your savings goal consistently, then you will know that you are in a position to buy within your budget. If you are struggling to meet your monthly savings goals, you might need to adjust your housing budget to what you can realistically afford.

“It’s 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 says.

The first place to look for savings is the property you are renting. Goslett says that if the rental is more than 30 percent of your monthly income, then it is too much.

“Finding more savings will require you to assess your current spending and scrutinise every expense. There are a number of ways to cut back on spending, it just takes some creativity,” says Goslett.

“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 on to the property ladder.

“Although 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 interest rate, it is best to have a solid financial foundation and be confident that you can make the commitment that homeownership requires,” Goslett says.