Advice and Opinion

First-time deposits represent two years of diligent saving

Shaun Rademeyer, CEO of Betterbond.
Shaun Rademeyer, CEO of Betterbond.

The average deposit being paid by home buyers in their 20’s is R92 000, according to the latest statistics from BetterBond (previously BetterLife Home Loans) and for those earning the average first-time buyer’s salary, that probably represents at least two years of diligent saving.

“Our figures show,” says CEO Shaun Rademeyer, “that the average first-time buyer earns around R37 000 a month, and assuming that they are able to save 10% of that, a R92 000 deposit would take 25 months to accumulate”.

“But of course not everyone can or will manage to set aside 10% every month, so it is quite likely that many of the young buyers who are entering the market now have been planning and saving for home ownership for several years. This type of commitment is very encouraging and it accounts, we believe, for the fact that the percentage of home loan applications being made by first-time buyers continues to increase at this time, contrary to what might usually be expected in a tough economy.”

The BetterBond statistics* show that first-time buyers accounted for 47,6% of home loan applications in the 12 months to end-June – compared to 46% in the previous 12 months, he notes.

“However, they only obtained 29% of all home loan approvals, suggesting that even large deposits are not sufficient to persuade the increasingly cautious banks to approve loan applications if the prospective borrower doesn’t have an impeccable credit record and sufficient disposable income.”

Meanwhile, Rademeyer says, repeat buyers also continue to show their confidence in the market by putting down very large deposits, mostly derived from the equity built up in their current properties as property values increased and the balances owing on their home loans decreased

“The statistics show that the average home price in the year to end-June was R1,095m, which is 3,6% higher than in the previous 12 months, and that the average approved bond size in the year to end-June was R868 000, or 4,2% more than in the previous 12 months”.

“This means that the average deposit paid was almost 21% of the purchase price or R227 000 – a sum that would take the average repeat buyer more than 41 months to save if they could put aside 10% of the average R55 000 gross salary in this category.”

However, he says, most repeat buyers actually use the proceeds of their sale as a deposit and are thus able to avoid any delay in purchasing a new home. This is reflected in a significant increase in the percentage of loans being approved for more than R1,5m.

“But that should not be interpreted to mean that it is easy for such buyers to get loans. They are subject to the same caution as first-time buyers, and without the assistance of a reputable originator such as BetterBond, they currently also only have a 35% chance of their application being approved”.

“Our approval ratio, on the other hand, has averaged 76,4% over the past 12 months, so those who apply through us really have a very good chance of their application being approved and of being able to proceed with their home purchase.”

*The BetterBond statistics represent 25% of all residential bonds being registered in the Deeds Office and are thus a reliable indicator of the state of South Africa’s residential property market.