Home loan deposits are expected to continue increasing. Picture: RDNE Stock project/Pexels
This year has been challenging for the residential property sector as rising inflation and interest rates deter aspiring owners from buying, but if anything positive is to have emerged, it is the increasing size of home loan deposits.
Determined buyers who have taken the plunge and invested in property despite the difficult economic conditions have gone even further by putting down bigger deposits.
In 2022, homebuyers across the country were putting down the “smallest deposits South Africa had seen in years”, with two of the key drivers being the banks’ willingness to grant zero deposit home loans and homebuyers not prioritising home loan deposits.
In 2023, however, homebuyers have greatly increased the amounts they put down on their home, says Jackie Smith, head of Buyers Trust, which is part of the ooba Group. Repeat buyers increased the size of their deposits by an average of 6.6 percent year-on-year, while first-time made an “even more staggering jump” in their deposit amounts.
The positive growth trajectory deposits are currently experiencing will only continue in the New Year, and so she shares her top five projected deposit trends for 2024:
1. Deposits used to create equity
Having equity in your home means you have ownership interest or value in your property that exceeds the amount still outstanding on your home loan. In other words, it decreases the gap between the market value of your home and what you still owe.
“Having a sizeable deposit not only reduces the total outstanding amount on your home loan but can also potentially secure you an interest rate below prime, meaning less interest paid over time.”
This, she explains, means that a larger portion of your monthly repayment goes towards paying down the principal balance, which increases your equity faster.
“By putting down a deposit you have equity in your home from Day 1 – before repayments even begin. With many buyers prioritising property investment as a wealth-building strategy, it’s no surprise that the trend of using deposits to increase equity is on the rise, as it’s an effective way to reach your goal faster.”
2. Deposits utilised to offset solar costs
More new homebuyers are financing the costs of solar installations as an add-on to their home loan, but deposits can also be used strategically to offset some of these costs. Just as a large deposit amount can increase the amount of equity you have in your home, a property equipped with a solar system increases its market value and therefore your equity.
If you’ve been able to put enough aside in savings to afford a large deposit, Smith says allocating a percentage of this lump-sum towards a solar system is a strategic way to increase your equity, while simultaneously giving you the upfront rewards of a home that is load shedding-resilient.”
“We expect to see this method of financing solar via a portion of the deposit increase in 2024 as the demand for green homes rises.”
3. Cost-savings
Zero-deposit, or 100 percent home loans, are on the decline among both first-time and repeat homebuyers, with the Q3 2023 oobarometer showing that these home loans now account for 53.7 percent of the bond originator’s total application intake. This is a drop of just over 10 percent from the previous year.
Interestingly though, Smith says, this trend is not linked to a fear of being penalised by the banks for not putting down a deposit as bank approval rates for these loans remain elevated at over 80 percent.
“Instead, the increased preference for deposits is representative of a larger shift towards more prudent saving among South African consumers, who have recognised that every rand counts in a challenging interest rate environment.”
4. Keeping your deposit safe while waiting for transfer
The 2022 change to the Property Practitioners Act (PPA), which no longer requires property practitioners like estate agents to operate trust account to host deposits, has led to a rise in secure, third-party deposit hosting platforms.
In the home buying sphere, Buyers Trust is one of these platforms and works by creating an investment account with some of the country’s major banks in the homebuyer’s name, to which the buyer can directly transfer the deposit. Buyers Trust then issues a bank guarantee to the transferring attorney, at no cost to the buyer.
“We’re also seeing a growing trend of cash buyers looking to securely store a sizeable cash deposit until the property transfer is complete and our technology has evolved to support this.”
5. First-time homebuyers putting down bigger deposits
Smith says the average age of first-time homebuyers (FTHB) in South Africa is increasing – now at 36, which could explain their ability to put down larger deposits. The Q3 oobarometer shows a staggering 25.9 percent year-on-year increase in the size of deposits among this segment.
“The average deposit size of R114,323, or 10.2 percent of the total purchase price, aligns with the trend we are seeing of new buyers adopting a more financially strategic approach to home buying.”
She adds: “Choosing to make their first purchase later in life is giving FTHB more time to save and put more equity in their home in the form of a deposit, a wise decision for which they will reap the benefits for years to come.”
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