Home buying statistics indicate that putting down a deposit is becoming less of a priority to South African homebuyers – a trend that may be to their own detriment, says Buyers Trust, a subsidiary of home loan specialist Ooba Group.
The latest Oobarometer for Q2 2022 reveals that the average deposit amount – calculated as a percentage of the purchase price – is 7.8% – down from 8.4% in the first quarter of this year.
Worse still is the popularity of first-time home buyers to take a no deposit 100% home loan. And first-time property buyers continue to dominate activity in the residential market despite recent interest rate hikes, according to the Seeff Property Group.
The group noted in June that home loan approvals are at their fastest rates in over a decade, while deposit requirements are now down to around 6% to 7% as the banks compete fiercely for a slice of the home loans market.
First-time buyers are still able to secure 100% bonds plus costs in many instances. Seeff said this has been an enormous benefit and buyers continue taking advantage.
Deeds office data shows that activity in the lower price bands continues to boom with about 80% of all transactions falling below R1.5 million.
Buyers Trust said that this shift in buying behaviour has been steadily building for years, as reinforced by a recent FNB Property Barometer which noted that South Africans who’ve purchased a home in 2022 are putting down the smallest deposits seen in 14 years, with banks approving an increasing number of zero-deposit home loans.
But, while prospective buyers may wish to take advantage of this lenient lending landscape to save in the short term, the decision not to put down a deposit is costing them significantly in the long run.
“We are concerned that buyers are failing to ‘do the math’ and not realising that not putting down a deposit of any amount will increase their monthly repayments and the total amount repayable at the end of their loan term,” said Jackie Smith, head of Buyers Trust.
“Buying a home is one of the most important financial transactions that a person will make in their life, and putting aside money for a deposit is the first step in making sure that they are adequately prepared for the extra costs that the process entails.”
To illustrate the savings that buyers are failing to capitalise on, Smith compared the monthly and total repayment costs of different deposit amounts on a R1.5 million home – rounded up from the national average purchase price of R1,431,712.
The following calculations are based on the average home loan period of 20 years and the current interest rate of 9%, using Ooba’s free online Bond Repayment Calculator:
| Deposit on R1.5 million home | Monthly payment | Total payable | Monthly saving (vs no deposit) | Total saving (vs no deposit) |
|---|---|---|---|---|
| 0% | R13 496 | R3 239 013 | None | None |
| 5% (R75 000) | R12 821 | R3 077 063 | R675 | R161 950 |
| 10% (R150 000) | R12 146 | R2 915 112 | R1 350 | R323 901 |
| 15% (225 000) | R11 472 | R2 753 161 | R2 024 | R485 852 |
Ooba’s data showed that putting down a 15% deposit would save close to half a million rand over the long-term.
“I would urge prospective homebuyers to think strategically and wait until they have enough money saved to put down a deposit before they begin the homebuying process,” said Smith.
“Saving up for a deposit indicates that a buyer is prepared for the significant financial responsibility that comes with buying a home and can put them in a better position to negotiate an interest rate below prime from their lender.”
“Even a 5% deposit makes a substantial impact on their monthly repayments and will help them to budget accordingly in these challenging economic times with the cost-of-living increasing and the ever-present risk of interest rate hikes,” she adds.
Smith said that once a buyer has made the decision to put down a deposit, they need to take the necessary steps to make sure that it is adequately protected or risk seeing their hard work go to waste.
“The unfortunate reality is that cybercrime is on the rise in South Africa and choosing to entrust your deposit with an estate agent or the transferring attorney may not give your deposit the high-level of security a financial transaction of this size requires,” she said.
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