July is Savings Month in SA – and a great time for young people to start saving a deposit for a home of their own, according to Rudi Botha, CEO of BetterBond, SA’s biggest bond originator.
Reacting to the findings of the latest Old Mutual Savings Monitor, he says it is very encouraging to see that the percentage of people aged 18 to 34 who are still living with their parents is shrinking and that the majority of those who have left are living in their own homes rather than renting.
The Old Mutual findings, released earlier this month, showed that 42% of the 18 to 34-year-olds surveyed in SA’ metro areas this year are still living with their parents or other family, compared to 49% last year. And of the 58% who are categorised as RIFS (recently independent, financially strapped), only 43% are renting. The remainder live in homes they have bought either alone or in partnership with others.
“This accords with our own statistics*, which show that despite the tough times SA consumers are currently experiencing, almost half (46%) of all the home loan applications we receive are from young people keen to buy their first homes, and that some 27% of bonds granted are going to these buyers,” says Botha.
“However, the Old Mutual survey also reveals that only half the RIFS who have purchased their own properties were able to pay a deposit, while our figures show that the average first-time buyer deposit is only around 11% of the property purchase price, compared with the 19% average paid by repeat buyers.”
And this is not really surprising, he says, considering that the average monthly income for RIFS is around R19 000 and that one in five is still financially dependent on their parents, while a third are doing a second, part-time job to make ends meet.
“The biggest monthly expenses for these consumers after accommodation are fuel/ transport; groceries and electricity, and the cost of all of these has risen substantially in recent months, so there really isn’t much income left to save for a home deposit or anything else. However, we are very encouraged by the finding that 63% of RIFS are active savers and that buying a home is among their top priorities.”
What is more, Botha says, those who do manage to save a substantial deposit will not be disappointed in the long run, stand to be well-rewarded for doing so. “Paying a deposit gives you a good chance of qualifying for an interest rate concession that can cut thousands of rand off the total cost of your new home over the life of the bond.
“In addition, you will need a smaller bond, which means lower minimum repayments and quite possibly the chance that you can pay an additional amount off every month and generate even greater savings.”
On a R1m home loan, he notes, an interest rate concession of just 0,5% will reduce the total cost of your home over 20 years by almost R80 000. And if you are also able to 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.
“However, to really maximise the potential savings, you should apply for your home loan through a reputable originator like BetterBond, which will not only give you the best chance of getting your loan approved, but also negotiate the best possible interest rate for your particular financial profile.”