At the moment, first time buyers are being urged to enter the property market as soon as possible because the banks are eager to lend them money, deposit requirements are low and home prices are set to start growing more quickly.
“In addition, the lenders have over the past two years become much more willing to advance so-called 100% loans for the full price of the property, and some have recently even re-introduced loans that cover the price of the property plus the additional costs of purchase such as bond registration, transfer and legal fees,” notes Carl Coetzee, CEO of SA’s foremost originator BetterBond.
“This is of course very appealing to the young consumers who make up the bulk of first-time buyers and who really struggle to save even a 10 to 15% deposit in the current economic climate, when many of them are burdened with monthly repayments on student loans, car purchase agreements and credit and store card debt as well as rent, food and transport costs.”
However, he says, BetterBond encourages buyers to pay even a small deposit and borrow less than the total price of their home whenever possible, “because this will make their monthly repayments more affordable and save them a significant amount of interest over the lifetime of their home loan.
“According to BetterBond’s latest statistics, the average home price for first-time buyers is currently R982 000, and a 10% deposit, for example, will lower the cumulative cost of such a home over the lifetime of a 20-year loan by more than R227 000.”
And while R98 200 is a large sum for most young buyers to save, Coetzee says, it is achievable, given determination and the right advice, including the following eight tried-and-tested ideas for boosting savings:
* Save first, then pay the rest of your bills and living costs. Don’t tell yourself you’ll save whatever is left at the end of the month. Save a certain amount as soon as you get paid, pay your monthly accounts next and then live off the rest, stretching it as far as you can (without creating more debt) by cutting down on all non-essentials. Preferably, set up an automatic transfer so your savings go straight to a separate account immediately after your salary is deposited.
* Review every debit order, at least once a year. Question what you may be paying for every type of insurance, your medical aid, gym memberships, reward programmes and satellite TV, and keep looking to see whether you can get the same cover for less, or more points or cash bonuses for what you are paying, or whether you should maybe eliminate some items altogether, at least until after you’ve bought your home. This is an easy way to “find” money to add to your savings, although you need to be careful not to scrimp on your insurance.
* Downgrade to cheaper transport. Vehicles are depreciating assets, which means their value declines over time. Property, on the other hand, appreciates over time, so it is worth putting more effort into saving for a home than into hanging on to a fancy car that is probably also costing you a lot to insure, maintain and licence. If you’re a couple with two cars, try to work out how you could live with one, and if you have one, consider downgrading to a cheaper vehicle and putting whatever you save each month into your home deposit account.
* Save on accommodation costs. If you are renting, consider a move to a home that costs less each month. Even if you only save R500 a month, you will have R6000 more in your home deposit account by the end of a year. Alternatively, rent out any extra space you have in your current home – a spare bedroom to a student, perhaps, or a garage to someone who needs extra storage.
* Sell absolutely everything you no longer need or use. Online sites like Gumtree, BidorBuy and JunkMail make it easy to sell your unused exercise bike, sports equipment, older technology and cameras, clothes, jewellery and even furniture. Just follow their safe-sale suggestions and you could raise quite a sizeable sum to put towards your deposit. Alternatively, hold a few garage sales.
* Create a home-based business – and a second income. People trying to save are often advised to get a second job, but actually it’s better to find something you can do at home to earn extra money, so you don’t waste time travelling or incur extra transport costs. If you’re good at handcrafts you can open an online shop and sell almost anything from handmade sweaters or sandals to homemade pickles and wedding cakes. If you’re good at fixing things, why not open a “weekend workshop” and encourage your neighbours to bring you things to mend for a fee. If you’re good at numbers, get paid to help other people with their tax returns. There are hundreds of options, and if you save everything you earn from these endeavours while living on your primary income, your home deposit account should grow quite rapidly.
* Bulk shop for basics. There may be some luxuries you feel you can’t live without, like a certain brand of shampoo, but for most basic household and food items like dishwashing liquid, toothpaste and canned tomatoes, it’s better to buy them in bulk when they are on special offer and store them for use over the rest of the year. Work out what you’ll save and put that towards your deposit.
* Be realistic about what you can afford. You might not be able to buy your “dream” home first time around, but your aim should be to get into the market as soon as you can. You can always trade up later. Your best move is to consult a reputable mortgage originator like BetterBond to get pre-qualified for a home loan based on your current disposable income. You will then have a much clearer idea of what price home to look for, and how much you really need to save for the deposit and transfer costs. You might even find that you are closer to your goal than you think!