Ways to save and budget for a bigger deposit on a residence

MANY aspiring home buyers believe 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.

Rudi Botha, chief executive of bond originator BetterBond, says its latest statistics show a sharp drop in the average deposit paid by home buyers.

From 22.5% of the purchase price in the 12 months up to April 2018, the average deposit has dropped to 19.75%. Added to this is the increase in approved home loan applica- tions, from 75% to 80%.

There is “some sense of urgency” to get into the market because prices are only rising at about 3%, but are expected to pick up momentum towards the end of the year, especially if interest rates continue to move down and economic activity picks up.

“However, we believe the best choice is to use whatever cash you have saved to pay a bigger percentage deposit on a less expensive property, not a smaller percentage deposit on a higher-priced property.”

The advantages of doing this, Botha says, will be that: 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 be lower; and you stand a better chance of qualifying for an interest rate concession on your bond that could save you many thousands of rand on the total cost of your home over 20 years.

“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 says an interest rate concession of just 0.5% will reduce the total cost over 20 years by almost R80 000.

“If you then pay an additional R500 a month off your bond, you will pay off your home in just over 17 years instead of 20 and save a further R195 000 in the process.”

Homeowners can also save money, and possibly pay this into their bond accounts, by plugging “seven little leaks”, says Berry Everitt, chief executive of Chas Everitt International property.

Even micro money leaks over time can add up to waste.

“Hidden” areas where homeowners may lose money are:

Food waste: Even if it seems cheaper to buy fresh food in bulk, you will waste money if it goes off in the fridge. 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 will save a lot if you cook “ready meals” and put them in the freezer.

Insurance premiums: Review these annually and get quotes from your current insurer and from competing companies.

Service charges. Go through bank statements to check charges for deposits, ATM withdrawals, online banking, notifications, debit orders and account manage- ment fees. Check your cellphone, city council and other bills for unexplained charges.

Subscription services: Things like Showmax, iTunes and audio books are easy to sign up for, but many forget to cancel subscriptions when we no longer using the services.

Gym or sports club membership fees: If you couldn’t stick to your exercise, tennis or golf routine, it may be time to cancel your membership.

Energy vampires: Power consumed by electronic devices in your home can account for as much as 15% of electricity usage. – Property writer