Save for a deposit, even if it makes life tough

Save for a deposit, even if it makes life tough.

When asked recently what advice he most often gives potential home buyers, Rowan Alexander, Director of Alexander Swart Property, said it usually boils down to one 

simple statement : “No matter how difficult you find it and no matter what austerities it might involve, start saving for a deposit – and start now.  Do not sit back 

and trust that one day you will quality for a 100% bond.  These are not given out easily – and they almost invariably have more expensive interest rates than 80% or 90% bonds, i.e. those secured with a deposit.”

This advice, said Alexander, is especially relevant right now because the recent revival in political and economic confidence in South Africa has already begun to 

boost the home buying scenario and bring new buyers to the market.

“We are finding that buyers are once again more optimistic about the future. They are pleased that the corruption in high places which has caused such serious problems is at last being confronted head on.”

South Africa’s middle class, especially the newly empowered sector, said Alexander, has however shown an inveterate tendency to get into debt as soon as financial difficulties are encountered.  Too many, he says, have an “I want it and I want it now” mind-set—“which of course, rules out any chance of a significant saving effort.”

“Saving for a deposit is not as difficult as many young people seem to find it,” he said. “At Alexander Swart we have been able to show people again and again that it is possible to save enough for a deposit provided they cut back on non-essential expenditure like new cars, expensive holidays and too frequent entertaining.”

Apart from the obvious fact that putting down a deposit will enable the buyer to pay less per month on his or her bond (if one is awarded), it has, says Alexander, two other benefits:  it makes it far easier to get a bond (“Having a deposit significantly increases your credit scoring”) and, secondly, having got the bond amount 

guaranteed by the bank, the buyer’s position with sellers is greatly enhanced and he is likely to be preferred above those buyers whose offer is  conditional on a bond award. In addition, it quite often enables the buyer to upgrade the quality and the size of the home he plans to buy above his original expectations.

When advising potential buyers on saving, it is also important, said Alexander, to make them aware of the extra costs associated with a home purchase: the money saved for the home purchase should include a sum to cover the transfer fees and bond registration costs.

“A sliding scale applies to these fees, he said, “but to give readers an idea of just how large these sums can be, on a R1,8 million home the transfer fee today would be R75,377 while the bond registration cost on a 90% bond for this amount would be R28,681 – both very substantial sums.”

It is, said Alexander, sometimes possible to take out a personal loan to cover these extra costs.  This, however, he added, increases the burden in the initial year or 

two of the home purchase, especially as such loans are only available at high interest rates.

Once the home has been transferred to its new owner, sums should be set aside every month for preventative maintenance.

“Too often,” said Alexander, “the cash-strapped home owner neglects to maintain his home properly.  Matters such as water proofing the roof, the treatment of door and window frames and faulty plumbing are not attended to.  What happens then is that deterioration sets in and the eventual repair which becomes essential costs a great deal more than maintenance would have done.  Somehow or other the home owner has to keep money aside for ongoing maintenance and if he does he will greatly enhance the value of his home when he comes to sell it.”

For further information contact Rowan Alexander on cell phone number 082 581 3116 or by email rowan@asproperty.co.za.