As property prices continue to spiral out of control in our major capital cities, particularly in Sydney and Melbourne, buying your first home is becoming increasingly harder. However, with the median age of home buyers increasing from 39 to 44 over the last five years, according to the National Association of Realtors (2015), there are more and more people reaching the age of 40 who have yet to buy their first home which is extremely worrying. And with property prices continuing to rise, this age will certainly go up with people living longer.
According to the latest research from Swinburne University, if you don’t buy a home by the time you’re 40, you never will. Buying your first home after 40
has some major concerns which doesn’t yet concern Gen Y; however, buying a first home at any age is getting more and more difficult.
Why buy a home in the first place?
With more and more people renting and enjoying the lifestyle renting can bring, buying a home might not have been at the top of their priority lists. Other reasons why 40 somethings might not have got around to buying their first home include spending a lengthy time working overseas, or getting divorced.
There is of course the affordability issue which stops many buyers, particularly younger buyers from getting on the property ladder in the first place. Wages growth is simply not keeping up with the pace of property price growth and if you don’t start saving when you’re young, then it becomes increasingly harder to come up with a 10 per cent deposit.
Another important reason why you should buy a home is for retirement purposes. For most of us, we want to enjoy our retirement in comfort after working for most of our lives. However, we can’t retire in comfort if we are still paying rent and don’t own any assets whether that’s a property or even shares. You need to prepare and think carefully about your future and work out what your goals are and how you will achieve them.
Owning your own home provides you with financial stability so becoming a lifetime renter
puts you at higher risk of suffering financial insecurity which you definitely want to avoid.
Concerns of buying your first home after 40
One of the main concerns about buying your first home after 40 is that you have less time to pay off a mortgage before you reach retirement age. With most home loans lasting around 30 years, this will put you at around 70 years old when you complete your final payment and most of us will want to be retired well before them.
As you have less years to pay off your mortgage, then the repayments might be higher and out of your budget and you simply might not be able to afford it, especially if you are not working full time anymore. Mortgage lenders also tend to be warier about you and might need you to put down a larger deposit to secure a property, to make you less risky.
You might also have other finance commitments such as school fees and private health cover which holds back your ability to save up a deposit for a home of your own. However, it’s wise to speak to a reputable Mortgage Broker to assess your borrowing capacity first and then speak to a Property Consultant such as our experts at iBuyNew who can walk you through your goals and find a property tailored to your own budget and circumstances.
So, how do you buy your first home after 40
? If you’re in your 40s or older, then you might still be able to purchase a property. Here are seven things to think about.
7 Things to help you buy your first home after 40
1. Make a plan
The first thing you need to do is to make a plan. Write out what your goals are such as when you want to retire, what property type you want to own and how comfortable a retirement you want to lead. Do you want to be able to go on holidays abroad twice a year and dine at fancy restaurants or would you prefer to holiday domestically and live more frugally? You need to consider all of these options.
2. Assess your financials
Once you know what your goals are, you need to assess your financials. How much money do you have saved up and what bad debts do you have? It’s best to speak to a Mortgage Broker and determine what your borrowing capacity is and whether you can afford to buy a property in the first place. If you don’t have a large enough deposit saved yet (typically 10 per cent) then you need to start saving. However, you need to clear any bad debts first such as credit cards or car loans as this will have a negative impact on your saving. Lenders will also look at your credit history and having bad debts against you can make it harder to be approved for a loan.
3. Save, save, save
Once your bad debts are cleared then it’s time to start saving as hard and as fast as you can. If your Mortgage Broker has told you that your maximum borrowing capacity is $500,000 then you need to have at least $50,000 deposit behind you. Make sure though that you do not buy a property costing $500,000 as there are other costs to factor in such as legal fees. Try to buy comfortably within your budget.
Cut down on expensive dinners and nights out and start bringing in your lunch to work. Instead of that holiday abroad this year, maybe you should holiday at home to cut out flight costs. You should also consider switching energy suppliers and shop around for a better savings account which might offer a better interest rate than what you are currently getting. You could also consider asking for a pay rise if you are due one, or think about finding a second job for a higher income. Make sure you have a savings plan and stick to it, such as transferring a set amount into your savings account as soon as you get paid to avoid spending it first on unnecessary items.
4. Use the First Home Owner Grant
As you are buying a property as a first home buyer then you might be eligible for the First Home Owner Grant. This grant differs per state that you live in, so in Sydney for example this is $10,000 if you buy a new property such as one off the plan. However, this First Home Owner Grant only applies to brand new property and not established properties.
5. Zero stamp duty
You could also be eligible for stamp duty savings which can help you buy your first home after 40. In VIC from 1 July 2017, eligible first home buyers won’t have to pay any stamp duty
on properties valued up to $600,000 and applies to purchases of both established and brand new homes. On a $600,000 property, this could save you approximately $31,000 in stamp duty.
6. Invest first, buy later
If you live in a city like Sydney where the median property price is almost $1 million, then buying your first home here might be impossible. You therefore might want to consider the rentvesting
option where you invest in property first and buy your first home later whilst you continue rent. This allows you to invest in a property interstate where property prices might be much more affordable such as in Brisbane and you have a greater chance of affording a property. Once your property has grown in value, you can then use the equity from this property to buy your first home or even another investment property instead.
7. Stop waiting, start acting
The best possible thing you can do to get you one step closer to buying your first home after 40 is to act today. The longer you leave it, the more expensive properties will become, the harder it is to save and play catch up and the harder it will become for lenders to approve you for a mortgage.
4 Key things to know
If you are buying your first home after 40 then here’s four key things you need to know first.
1. Consider a Reverse Mortgage
If you take on a mortgage, then you can apply for a reverse mortgage. This is where you can borrow money using the equity in your home as security. This loan can be taken as one lump sum, as regular income, a line of credit or as a combination. You just need to pay the interest, but you don’t need to make repayments whilst you live in the home.
2. Go for a low risk option
Be prepared that interest rates which might be low at the time of purchase, might increase and can make your mortgages more expensive. To reduce this risk, you can fix your loan for a certain period, which makes budgeting easier each month, You should also ensure that your property isn’t over your budget as this can put huge financial pressure on you which you do not want to have at this time in your life.
3. Other costs
There are also other costs you need to factor into your budget including legal fees, stamp duty, moving costs, new furniture etc. Make sure you have enough cash to finance all of these as well.
4. Consider buying off the plan
If you buy a property that is off the plan
then not only do you benefit from more affordable entry prices compared to an established home, but you can also make the most of longer settlements of at least 12-18 months on average. You can use this time to continue saving up a larger deposit in case you need it without having to pay a mortgage, whilst your property could also grow in value. There is also greater choice of properties and less competition to go up against making an off the plan property purchase as a first home buyer much more easier and less stressful.
Get in touch
If you have yet to buy your first home and are in your 40s then don’t give up hope. Get in touch with the friendly iBuyNew team today and we can help find a property that fits your low risk strategy today allowing you to retire in comfort sooner rather than later.
Ensure that you don’t end up a lifetime renter and face an unsecure financial future. Call us today on 1300 123 463
to find out how you can own your own home today.
Published on 11th of May 2017 by Marty Stanowich