Home loans for different age groups

People of different ages have different housing requirements but they also face different challenges when trying to obtain a home loan.

Retired or almost retired borrowers, may well have low debt, significant assets and high home equity, but may also be on a fixed income. And if that income is lower than what they used to earn can hinder the approval of a home loan for their retirement home. Some banks may also be reluctant to grant new 20-year mortgages to senior citizens.

According to the latest statistics from BetterBond Home Loans, which is SA’s biggest mortgage origination group, home buyers over 60 years of age are now typically buying properties worth around R1.2 million and having to pay an average deposit of some R470 000 (39 percent) to do so.

This puts their average bond repayment at R6 700 a month and the income required to secure the bond at R22 500 a month.

BetterBond CEO Shaun Rademeyer says, however, if they’re not sure that their earnings will continue at this level, or are worried that that their expenses, particularly in regard to health, will rise substantially over the next few years, they need to consider other options.

“One is to lower the monthly repayments by paying an even bigger deposit, but a much better idea would be to set their sights on a lower priced home, preferably low-maintenance and in a good area or retirement village where they would be happy to live long-term.”

That way they can put more of the cash from the sale of their family home into their ‘retirement fund’, save on maintenance and property rates, and still improve their chances of being granted a loan, he says.

By contrast, first-time home buyers in their 20s and early 30s may well have plenty of income to support a home loan application but a big debt load that hinders them from being approved.

“Banks are only interested in ‘disposable’ income – what is left after all debt payments and regular expenses have been deducted – when considering a loan application, so what buyers in this age group need to do is pay off any other debts as fast as possible until their disposable income will comfortably cover the monthly home loan repayment,” he says.

The BetterBond stats show that home buyers aged between 20 and 30 typically buy properties costing about R715 000, with a deposit of about R67 500 (9.5 percent), which puts their monthly bond repayment at just over R5 600 a month.

Some banks do have special programmes for first-time buyers that allow them to buy without paying a deposit (100 percent bonds), but they should bear in mind that this will increase the monthly bond repayment.

As for home buyers in their late 30s, 40s and 50s, their most frequent need will be to buy a bigger home to accommodate a growing family, whether that means more children, aging parents or both.

Rademeyer says these buyers will usually have enough equity in their existing homes to cover the deposit, or most of it, on their new home, but an expanding family generally means higher monthly expenses so, although they probably have plenty of earnings, they also need to minimise other debts like car repayments and credit card balances in order to look good to a lender. “At the same time, they should not be neglecting their own retirement savings, which means they should resist buying to the maximum of their financial capacity.”

According to the BetterBond stats, the average buy price for home buyers in their 40s is currently R990 000, on which they are paying a deposit of around R191 000 (19 percent). This puts their average bond repayment at about R6 950 a month while those in their 50s are paying around R7 100 a month, on average.

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