In a world of instant gratification, the idea of delaying a home purchase until you’ve saved up a deposit sounds positively antiquated to many people - but there’s nothing old-fashioned about the amount of money to be saved by doing just that, says Rudi Botha, CEO of BetterBond.
“Of course no-deposit or 100% home loans do make it easier for young buyers and first-timers to get a quick start in the property market, and over the past 10 years they have once again become more readily available, especially to buyers in the affordable home sector.
“However, it is important to understand that 100% loans come at a high long-term cost, and that with home price increases currently running behind the rate of inflation, there is less pressure to get into the market quickly and all the more reason to save and put down a deposit of 10% or even 20% of the purchase price.”
In the first place, he says, this will make it easier to qualify for a home loan. “If you were buying a R1m property and could put down a 10% deposit (R100 000), for example, the gross household income required to qualify for a bond at the current prime rate of 10% could drop from around R32 000 a month to around R29 000, depending on your other monthly expenses.
“In addition, the minimum monthly bond repayment will fall from R9650 to R8685, which will immediately make your home more affordable on a month to month basis, and reduce your household expenditure by almost R12 000 a year.” (See table below.)