Don’t Leave it Too Late

Private Property South Africa
Lea Jacobs

Although there may be a variety of reasons that some people are not interested in buying property, age is definitely one factor that older people take into consideration. In a recent survey conducted by Columinate on behalf of Private Property one of the respondents aged between 50 and 59 years noted that she was not interested in buying property because she felt that she was “simply too old to buy a house now.”

So when is a person too old to invest in property? In an ideal world, the short answer would be “never” as long as, of course, the person was able to pay off the debt. However, we live in the real world and the reality of the situation is that the goal posts change as we get older – particularly if we want to take out a bond.

Banks are pretty careful as to whom they will lend money to and, unfortunately, the older we get, the more reluctant they become to shoulder the entire risk. As with any business, risk has to be calculated and, while there are retirees out there who are able to access finance for various reasons, their risk portfolio would need to be substantial enough for the banks to grant finance with the certain knowledge that it could recoup its money.

One of the major drawbacks that retirees and people over the age of 50 often face is that banks will, more often than not, reduce the payback period quite substantially. In other words, whereas a person in their 30s may be granted 20 or 30 years to pay back a bond, older individuals may find that they are expected to pay their loan back over a much shorter period. This essentially means that bond repayments and deposits are going to be much higher for this age group.

Generally speaking, this does not pose too big a problem as most people in this age bracket have built up a pretty solid portfolio. Most will already own at least one property and have the financial means to pay off the larger amount. The problem comes in when an older person decides to buy a property for the first time.

It has often been stated that the earlier a person gets onto the property ladder the better. It goes without saying that a person who invested in property 20 years ago is in a far more secure place, financially speaking, than one who didn’t. Apart from the obvious benefits of buying a home when prices were much more affordable, property is always an asset.

In addition, for the best part, moving into a secure environment that is aimed at the older generation is more expensive than living in an ordinary home. Those who are planning to move into a retirement complex will find that selling an asset to help finance the new venture will take the sting out of the deal. Asking a bank to finance any shortfall is far easier than asking it to hand over the full amount.

The National Credit Act also comes into play and banks have become ever mindful of responsible lending. When the Act first came into being, a number of older people were caught unawares and were surprised when their bond applications were rejected. But the days of reckless lending are over and any bank that is found guilty of lending money to anyone to whom it shouldn’t, is liable for a hefty fine.

While you may argue that there is no risk as a life insurance policy will cover the bond in the worst-case scenario, the cost of such cover also needs to be taken into consideration. Life insurance companies like banks, need to weigh up all the risks and there is no two ways about it: the older you are, the higher the risk you pose. The insurance company may not refuse to insure your life. It is, however, going to make you pay a premium for the privilege, thereby adding further expense to the home buying exercise.

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