As part of the response to the coronavirus, the governments’ significant reduction of interest rates, the lowest in 50 years, has boosted the home ownership market. It manifested as a catalyst for recovery of a struggling pre-Covid sector, but the added benefit is that it opened up a market for the youth who are literally driving this market into a new era.
Absa Home Loans, which tracks trends in the property market, reveals that it is the under-35 age group that drove the initial part of the growth after a hard lockdown. It is also this demographic that currently contributes more than 50% of activity among first-time home buyers.
Muzi Zim, Head of Advanced Analytics at Absa Home Loans, also confirms that the under-35s are increasing the value of properties they are buying … “currently spending 27% more than they did before lockdown.
“The activity of the under-35s is driven by many opportunities aside from the favourable interest rate. They are saving on transfer duties for properties below R1-million for example, and the banks are granting 100% loans, subject to affordability and credit assessments.”
Within this demographic, women feature strongly. Single moms are looking to create security for their children, and often drive the young family dynamic to move from rental to ownership.
“Another notable female-driven trend, is that women are currently spending 30% more than pre-lockdown levels, as compared to a 19% increase for male buyers,” says Zim. “Given the lower base however, male buyers are still spending more on average although this gap continues to close. Regardless, this steady rise in women’s buying power is reshaping the local property market.”
Estates are popular
Overall, the youth appear to have a big appetite for sectional title and estate living, especially among female buyers for whom the appeal of good security and fixed monthly levy costs that cover common property maintenance, is important. Although freehold ownership is still a consideration, the additional costs of upkeep of the external and garden areas of the home and having to take care of their own security needs, are an added financial burden.
What are the youth seeking
“The youth are seeking properties that offer specific key amenities,” says Zim. “This includes access to good transport networks, shops, banks, schools and more. Fibre and connectivity are crucial. For young professionals working from home, this is exceptionally important as is a sectional title unit with an extra bedroom that can be used as an office.
“First-time buyers are getting access to unwanted office and retail space that has been converted to residential units. Precincts that were deserted after office hours are now showing signs of life as young people transform them into smart, urban hubs, and more so if those areas embrace sustainable living,” says Zim.
“We must also not forget that the youth are big entertainment consumers. In the current Covid-19 world, with lockdown rules restricting social gatherings, we are seeing the trend of the youth spending more time at home binge watching Netflix for example, playing online games and using technology to connect virtually with family and friends. This has highlighted just how important comfort is in the home.”
The Absa youth proposition
Absa has a number of solutions that drive superior customer value propositions for first-time home owners, and have extensively researched relevant needs and pain points. The Absa Young Professionals proposition, for example, addresses the needs of professionals by offering:
1.A loan of up to: a 105% home loan – purchase price not exceeding R1.5-million
2.30% discounts on bond registration costs, thus attorney convenience
3.Protection of a private property asset with a range of Insurance solutions
4.The ‘leaving of a legacy’ with the drafting of a Last Will and Testament
5.Access to ABSA rewards benefits (the only bank that offers real cash back)
6.And as an Absa customer with an Absa cheque account, the ability to transfer additional funds within a budget into the home loan through the Absa Banking App. Such funds can also be withdrawn using the Absa Flexi-reserve option on the home loan account.
If the youth still remain fearful or concerned about taking that big step towards home ownership, Absa provides a number of tools and information online. There is the Absa Home Loan Estimator (Pre-qualification), to establish upfront, what the potential bank home loan may be. The Absa MyHomeOwnerJourney is a free e-learning platform to educate one on the in’s and out’s of home ownership. The Knowledge Hub Centre provides answers to the most frequently asked questions, and the ever-popular bond calculator allows users to establish the full costs associated with a home loan, such as registration charges, transfer costs and attorney fees.
Things to consider
To ensure eligibility for a home loan, Zim recommends the youth must do some crucial homework. “They must prepare their finances, such as drawing up a budget and checking their credit score with credit bureaus.
“Preparing for the associated costs is also important, and not just bond registration, initiation and transfer fees, but also insurance for the property (if applicable), moving costs, rates and taxes, power and water, and levies if required.”
When seeking a property
“At Absa, we encourage our aspiring home loan customers to consider property value growth in the markets where they seek to buy. There may be reports available for instance, where values over time give insight into a suburb’s particular attractiveness. We also suggest that viewing of show houses must also be considered during the week to get a sense of peak traffic volumes and movement, and area activity.”
Important considerations for joint ownership
With many youths choosing to share a home loan, there are specific conditions. For example while a joint application can increase the chances of qualifying for a home loan, by law they have to accept that they are jointly and severally liable for the total monthly home loan repayments, taxes and any other legal and administrative fees. However, banks demand that the monthly repayment debt of the home loan has to come from one bank account. And if either one of the applicants defaults in the repayment, both applicants credit profiles are impacted.
“In future, if one applicant wishes to exit from the home loan agreement, a substitution of debt has to take place whereby a new home loan application will have to be processed and a full credit assessment conducted on the application to verify affordability,” says Zim. “The new applicant will be liable to pay for bond registration fees for that new home loan.
“An important reminder if co-purchasing a home, is that an attorney should be consulted, who can draw up a partnership agreement detailing the finer details of the arrangements, share of ownership and conditions for dissolving the partnership.
Secure the asset
“Absa also recommends that each of the joint applicants, although this applies to every home owner, has a will to instruct what should happen to the home and home loan, in the event of their death. Most banks also require applicants to have adequate life cover that can be ceded onto the bond to ensure that the family’s financial future is secure by covering outstanding debt on the property” says Zim.
Overall, the market is currently presenting excellent opportunities for the youth to become home owners. The industry is in a swing, where demand in popular areas is beginning to outweigh supply. For young and growing families this is a crucial time to explore the long-considered upgrade to a bigger home, to buy rather than rent, and to secure an asset for family security.