First time buyers, this is how to enter the market intelligently
Go big or go home? When it comes to buying your first home there is definitely a middle ground – go home to a smaller home you can comfotably afford.
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 national 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, CEO of BetterBond, SA’s biggest bond originator. “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.”
The BetterBond statistics (25% of all residential bonds being registered in the deed’s offices) show that the average home price currently being paid by first-time buyers is R797,000, with the average deposit being R91,00 – or about 11,4% of the purchase price.
In addition 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.
Be realistic, buy smaller
Most will of course take longer than that even if their salaries increase in the interim, 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, notes Botha, is not to give up on the idea of paying a sizeable deposit, because this will not only improve your chances of being approved for a bond but could also mean that you 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 if you are really keen to get into the property market is to reset your sights and buy a less expensive home as a starting point. By doing this you will lower the amount you need as a deposit and quickly be able to replace your monthly rent payment with a bond repayment on an asset that is increasing in value.
Ideally you should then also be able to divert what you were saving for a deposit into your home loan account and build up extra equity in the property that can be used, in a just a few years’ time, to help you ‘trade-up’ to a bigger and better home without having to stress about raising a big enough deposit.