Boomers riding to the rescue - again
News > news - 18 Oct 2011
Born between 1946 and 1964, the ‘Boomers’ were of course largely if indirectly responsible for the post-war recovery in housing demand and prices, with the buyers being their own parents. A second major wave of property prosperity followed in the 1980s when many Boomers were in their 20s and 30s and buying homes of their own.
And now it seems they may play a key role in a market upturn for the third time as they help to fund home purchases by their children and grandchildren, says Rudi Botha, CEO of leading mortgage originator Betterbond.

“Currently the biggest stumbling block for potential homebuyers, and first-time buyers in particular, is the lenders’ requirement that they pay a cash deposit of up to 30% of the purchase price. And this is not just a problem in SA – banks worldwide want people to invest some of their own money in their homes.

“However, we are now seeing a big trend emerge, in SA as well as overseas, of parents and family members assisting younger buyers to become homeowners by lending them the money for these deposits. This, we believe, is a major factor in the recent sharp rise in the percentage of sales to first-time buyers.”

In many cases, he says, the deposit money is coming from the equity that Boomer parents have built up in their own homes. “But usually this is not in the form of an equity loan. Rather, it is often part of the proceeds of the sale of a big family home as Boomer parents increasingly downscale to smaller, more secure and easier to maintain properties.

“This downscaling is the other big trend in the market at the moment, with the latest FNB survey of estate agents showing, for example, that the percentage of homes being sold for this reason has risen from 14% to 23% in the past two years. And it is not really surprising, since the 50 to 64-year-old (Boomer)
sector is the fastest-growing sector of our population, according to the latest figures fromIHSGlobalinsight.”

What is more, Botha says, many Boomers are finding that housing deposits for their children or young relatives are actually pretty good “investments”.

“Often we find that the big issue for first-time buyers is not bad credit or lack of affordability but the need to have a large sum of cash in hand. In many cases they can well-afford to make the monthly repayments on an 80% bond and pay their parents back at the same rate of interest for the 20% deposit.

“And this is great for the parents because there are few other places they could safely put excess cash at the moment and get an annual return of around 9%.”
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