How to speed up deposit savings - and why you should

For the past 18 months, first-time buyers have been streaming into the property market to take advantage of the lowest interest rates in decades and the easy availability of 100% home loans, but now they should once again start saving up a deposit before committing to a purchase.

So says Gerhard Kotzé, MD of the RealNet estate agency group, who notes that with both inflation and interest rates on the rise, the lending environment is bound to get tougher with the banks tightening up their credit qualification criteria.

"As it is, most banks considering home loan applications want to see that prospective buyers have sufficient disposable income not only to pay the proposed monthly bond instalment, property taxes, insurance and maintenance, but also their other monthly expenses such as transport, food, school fees and debt repayments.

"But they know things are going to get harder for consumers in the next few months as the cost of fuel, food and electricity continue to rise and interest rate increases continue to increase debt costs such as car and credit card repayments, so we anticipate that many buyers are going to find it more difficult going forward to qualify for the home loans they want."

The exceptions, he says, will be those who have saved up a deposit of at least 10% to 12% of the purchase price - or more if possible. "And these buyers will not only find it easier to qualify for a home loan but enjoy two other benefits as well, the first of which is the need for a smaller home loan, which will make their monthly repayments more affordable and manageable in the face of further interest rate increases.

"In addition, buyers with deposits are more likely to qualify for an interest rate concession on their home loan that could help them cut tens of thousands of rands off the total cost of their home over 20 years."

However, says Kotzé, deciding to save is always a lot easier than actually doing so, and prospective homebuyers will need to be both determined and creative in order to reach their target amount. "A great place to start is by looking at your current accommodation costs, because if your rent is 30% or more of your income, it really might be worth moving to a cheaper place for now so you can set aside more money every month to buy your own home.

"But if you are going to move, it should not be somewhere further from work, or you could just end up swapping your rent savings for higher transport costs."  

The second thing to do, he says, is to speak to your bank or financial advisor about opening an account specifically for your deposit savings that offers you the best rate of interest and the lowest banking charges. "In addition, you should get into the habit of always comparing prices before you shop, especially for your weekly or monthly essentials, and stop using credit cards which just create more debt.

"Alternatively, you may want to work at paying off some credit card or store card balances before diverting whatever cash was going towards those debts into your deposit savings account. You should perhaps keep one credit card for emergencies only (the one with the lowest interest rate) and definitely stop buying anything on 'budget' terms or layby or hire purchase.

"Meanwhile, you should also try some old savings favourites, like putting all your loose change into a jar every day, packing your own lunch for work, using public transport instead of the car as much as you can, selling off all your unused goods or equipment and entertaining at home instead of eating out. Even if these measures only save a few rands at a time, they will still help you reach your goal faster."

Kotzé says you should also consider supplementing your savings by doing part-time work at night or on weekends, especially if you can do this online. "Alternatively, if you enjoy cooking or baking, art or any kind of craft, why not take a stall at your local weekend market and turn your hobby into cash for your new home?

"And finally, you should not let yourself get discouraged. Budgeting and saving for your first home should not make you feel deprived but rather elated that you are getting closer every day to being able to give yourself something that you really want."