First-time buyers need to be aware of these crucial factors that affect their journey to homeownership, especially in the challenging times ahead.
The COVID-19 pandemic has changed everyone’s lives indelibly. First time home buyers find it more challenging to start planning to buy a property as many may face employment issues. Even those who are financially unaffected are vigilant about buying a property in this uncertain time as some projects could be delayed.
Most importantly, many first-time or young buyers could also find it tougher to get financing. This holds true, particularly for millennials who are now between the ages of 24 and 39.
Here, we lay out the real reasons this generation struggles to afford a home and, ways you could overcome this affordability problem and weather these tough times. We urge you to read to the end before making a conclusion.
1. Settle your student Financing(s)
Education is an essential asset for young Malaysians. However, colleges and universities can cost a bomb. The National Higher Education Fund Corporation (PTPTN) was established in 1997 to provide financing to eligible students and manage funds for higher education. It also means that the majority of PTPTN borrowers and defaulters are millennials; the reason is far deeper than Millennial’s lack of financial planning and irresponsible spending habit. (We will touch more on this in point 2.)
Student financing by the PTPTN has been a hot topic for many years, causing many young Malaysians to default or carry their debts deep into their working lives.
PTPTN even lists its borrowers in the Central Credit Information System (CCRIS). If you are not careful, your chances of owning a home could be jeopardised.
Your credit history obtained through the Central Credit Reference Information System (CCRIS) or Credit Tip-Off Service (CTOS) indicates your ability to repay all your debts. This includes a credit report that summarises your financial statements and activities to determine creditworthiness.
Solution: Maintain a good and healthy credit score by paying your student loans/financing diligently from the get-go to clear your path to homeownership. If you haven’t been servicing your PTPTN loan/financing and now find yourself ready to purchase your first property, you can opt to withdraw from your KWSP account 2 to settle the outstanding loan/financing amount (subject to the available amount).
CCRIS information is updated on the 15th of every month, therefore any loan/financing application should be made on the 16 onward.
2. Keep your rent affordable
When you start working, you are more likely to rent a place until you can afford a down payment and financing.
But could exorbitant rental be a hindrance to homeownership, especially for young buyers?
If you’re splurging a big chunk of your monthly salary on rent, you could be heading in the wrong direction.
On top of that, many home buyers are not aware of the options available for affordable mortgage financing packages.
Solution: Only rent places that you can afford. Maintaining the rule of 20/80 could help you gauge whether the rent you’re paying is affordable relative to your income.
Someone with RM3500 monthly income should spend less than 20% of their salary on rent to leave room for savings and other important spending. Once you’re ready, you can start exploring affordable financing packages to ease your mortgage burden.
3. Take advantage of the economic stimulus initiatives
“Houses are way too expensive nowadays!”
This is a common complaint and for good reasons. However, this feeds into the common misconception that all properties are expensive, which is not always true.
There are bargains even during an economic downturn. For example, asking prices for properties all over Malaysia have shown signs of stagnation or decline even in urban centres. As part of the government’s effort to stimulate the economy post-MCO, the Short-Term Economic Recovery Plan (PENJANA) has been introduced and one of the initiatives include HOC 2020.
Solution: Effective from 1 June 2020 to 31 May 2021, a minimum of 10% discount is offered to Malaysians looking to purchase a property priced between RM100,000 and RM 2.5 million. Plus, with the recent proposal in Budget 2021, buyers will also enjoy a 100% stamp duty exemption on the Instrument of Transfer and Instrument of Financing Agreement for the purchase of their first home worth up to RM500,000.
Take advantage of the economic stimulus initiative such as the record low overnight policy rate (OPR) cut. The past months alone has seen the OPR reduced to a record low of 1.75%.
What this means is that if your home financing is pegged to the Base Rate (BR), lower OPR contributes to a lower interest/profit rate and subsequently lower monthly repayments.
4. Look for a smart and affordable financing
Unless you’re born with a silver spoon, many falls at the very first hurdle and are unable to afford monthly financing instalments.
A contributing factor is the overhang of properties in the residential property market, with significant gaps between property selling prices and existing market value.
However, sustainable mortgage financing offerings are available in the market to assist home buyers.
Solution: One prime example is CIMB FlexiOwn. This unique package places emphasis on the sustainability of mortgage financing for home buyers. This gives buyers the freedom in selecting their dream homes.
With FlexiOwn, monthly instalment for the first 5 years is reduced by up to 10%. You only start paying full instalments from the 6th year onwards. *T&Cs applies
The reduced monthly instalments will provide you with additional cash flow while still ensuring that you own your dream home, especially during this difficult economic period.
Who is eligible for FlexiOwn? You qualify only if you apply for HomeFlexi Smart/-i and only for properties valued up to RM1.5 million.
CIMB FlexiOwn offers a feasible option for mortgage financing to shift mindsets in taking up financing for completed as well as under-construction residential properties. This in turn could reduce the property overhang in the market.
Interested to find out more? Visit CIMB website for further details!