Small house means you are saving for a smaller deposit

FIRST-TIME buyers typically need to save for at least three years to afford the deposit on a home, but if they buy smaller homes, they will be able to reduce this time and improve their ability to repay the bond.

Rudi Botha, chief executive of bond originator Betterbond, says these buyers may believe that as home prices continue to rise, they “are never going to get there”.

“However, it is never a good idea to try to buy a home without a deposit.”

The BetterBond statistics – which represent 25% of all residential bonds registered in the Deeds Office – show the average price currently paid by first-time buyers is R797 000, and the average deposit is R91 000, or about 11.4% of the purchase price.

The most recent BankservAfrica figures show the average take home pay in South Africa is now R14 000 a month, so even a couple who are both earning that and both able to save 10% of their income (R2 800) every month will need almost three years (32.5 months) to accumulate the R91 000.

“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.”

But people should not give up on the idea of paying a sizeable deposit.

“The real answer for those who are really keen to get into the property market is to reset their sights and buy a less expensive home as a starting point. By doing this they will lower the amount they need as a deposit and quickly be able to replace their monthly rent payment with a bond repayment on an asset that is increasing in value.

“They should then also be able to divert what they were saving for a deposit into their home loan account and build up extra equity in the property that can be used, after a just a few years, to help them ‘trade-up’ to a bigger and better home.”