Rather than saving for a bigger deposit, many homebuyers are taking advantage of favourable lending conditions
Many aspiring homebuyers are of the view they should take advantage of the current lending conditions and secure a home loan with whatever deposit they have, rather than wait to save more and risk stricter lending conditions, higher home prices or interest rates starting to rise again.
This is according to Rudi Botha, chief executive of bond originator BetterBond, who says its latest statistics show a sharp drop in the average deposit being paid by homebuyers.
From 22.5% of the purchase price in the 12months up to last month, he says the average deposit has dropped to 19.75%. Added to this is the increase in approved home loan applications, from 75% to 80%.
There is “some sense of urgency” to get into the market because prices are rising at about only 3% a year, but are expected to gain momentum towards the end of the year, especially if interest rates continue to move downward and economic activity picks up.
“However, we believe the best choice if you are in haste to become a homeowner is to use whatever cash you have saved up to pay a bigger percentage deposit on a less expensive property, not a smaller percentage deposit on a higher-priced property.”
The advantages, Botha says, will be:
You will need a smaller home loan.
Your minimum monthly bond repayment will be lower and you will need less disposable income to cover it.
The monthly household income you need to qualify for the loan will thus be lower.
You will have a better chance of qualifying for an interest rate concession on your bond that could save you thousands of rands on the total cost of your home over 20years.
“You may even be able to pay an additional amount off your bond each month and pay your home off early.”
On a R1 million home loan, he notes that an interest rate concession of just 0.5% will reduce the total cost of your home over 20years by almost R80 000.
“If you are then able to pay an additional R500 a month off your bond, you will pay off your home in just over 17years instead of 20 and save a further R195 000.”
Homeowners can also save money – and possibly pay this into their bond accounts – by plugging “seven little leaks”, says Berry Everitt, chief executive of the Chas Everitt International property.
Even micro money leaks over time can add up to a lot of wastage.
The “hidden” areas where homeowners may be losing money are:
Food waste: Even if it seems cheaper to buy fresh food in bulk, you will be wasting money if it goes off in the fridge before you can eat it. Rather buy less or arrange with friends or neighbours to share bulk purchases. Also, entertain at home instead of going out.
Processed food and takeaways: You may not have time to cook every evening, but you will save a lot if you can set aside one day a week to cook and create “ready meals” and put them in the freezer.
Insurance premiums: You should review these annually and get quotes from your insurer and from competing companies.
Service charges. Go through your bank statements and check what you’re being charged for deposits, ATM withdrawals, online banking, notifications, debit orders and account management fees. Also check your cellphone, city council and other bills for any unexplained charges.
Subscription services: Things like Showmax, iTunes, audio books, wine and even razor deliveries are so easy to sign up for, but many of us forget to cancel these subscriptions when we no longer use the services. These may seem like small amounts, but R100 a month for a service you don’t use is R1 200 a year that you could be saving.
Gym or sports club membership fees: If you joined with good intentions but couldn’t stick to your exercise, tennis or golf routine, it may be time to cancel your membership. If you’re still keen to get fit, take up running or walking.
Energy vampires: Experts say the power invisibly consumed by electronic devices in your home – even when you are not there – can account for as much as 15% of your household electricity usage and cost you hundreds of wasted rands a year. The worst of these are appliances with “off” buttons that don’t actually go off but stay on “standby” and keep using electricity.