Buy smaller and buy sooner

First-time buyers typically need to save for at least three years to afford the deposit on a home, and the VAT and fuel price increases announced in this year’s budget are going to make it even more difficult for them to reach that goal.

“And as home prices continue to rise, they may feel like they are never going to get there, especially since they will also need cash to pay bond registration, legal and transfer fees,” says Rudi Botha, chief executive of bond originator BetterBond.

“However, it is never a good idea to try to buy a home without a deposit, and there is another way for prospective buyers to shorten the saving process.”

He says BetterBond statistics show that the average home price currently being paid by first-time buyers is R797 000, with the average deposit being R91 000 – or about 11.4% of the purchase price.

In addition, he says, the most recent BankservAfrica figures show that the average take-home pay in South Africa is now R14 000 a month, so even a couple who are able to save 10% of their total earnings every month (R2 800) will need almost three years (32.5 months) to save up the R91 000.

“Most will of course take longer than that even if their salaries increase, because their rent will probably also go up, along with the cost of food, transport, utilities and healthcare, and then there are always those emergencies that disrupt the plans of even the most diligent savers.”

But the answer, says Botha, is not to give up on the idea of paying a sizeable deposit, because this will not only improve their chances of being approved for a bond but could also mean that they qualify for a lower interest rate. And a lower interest rate means more affordable monthly repayments plus big savings on the total cost of a home over the lifetime of the bond.

“The real answer for those who are really keen to get into the property market is to reset their sights and buy a less expensive home as a starting point. By doing this they will lower the amount they need as a deposit and quickly be able to replace their monthly rent payment with a bond repayment on an asset that is increasing in value.

“They should then also be able to divert what they were saving for a deposit into their home loan account and build up extra equity in the property that can be used, in a just a few years’ time, to help them trade up to a bigger and better home without having to stress about raising a big enough deposit.”