Easy way South African homebuyers can save R100,000

With South Africa’s real estate market experiencing an uptick, prospective homebuyers should ensure they save for a deposit before investing in property. This could result in savings of over R100,000 over their mortgage period.

Dr Andrew Golding, CEO of Pam Golding, explained that sales activity is increasing nationally, especially among first-time buyers.

This is largely due to the country’s interest rate-cutting cycle, which started in September 2024 and to which new homeowners are particularly sensitive.

According to ooba Home Loans, there is clear evidence of a recovery in first-time buyer demand during the second half of 2024, with notably strong growth in demand in Mpumalanga, Johannesburg and Gauteng South and East.

Golding explained that the banks continue to support the housing market, with the average weighted concession relative to prime improving across all regional markets in 2024.

With this increased activity in the country’s real estate market, Nedbank advised that prospective homebuyers should first save up for a deposit, even if they qualify for a 100% home loan.

“A sizeable deposit is an advantage, as it reduces the size of the home loan you need. The less money you need to borrow, the lower your monthly instalments will be,” Nedbank said.

“More affordable payments also make it easier to qualify for a home loan.”

According to the bank, anything from 10% or above is considered a decent deposit.

“A R100,000 deposit on a property costing R1 million will certainly have a positive impact on your monthly instalment.”

“For example, if you get a 100% home loan at 7.25% over 20 years, your monthly instalment would be just over R7,900.”

“But your 10% deposit lowers your home loan amount to R900,000, which will cost just over R7,100 a month – a saving of more than R9,000 a year.”

A 15% deposit would boost these monthly savings by R400, and increasing the deposit to 20% would give you R800 off every month, resulting in savings of R18,600 a year.

“If keeping your monthly expenses lower is important for your peace of mind, then saving for a sizeable deposit first is your route to home ownership with affordable bond payments.”

According to Nedbank, saving for a deposit will also give prospective buyers more options by lifting them into a price bracket they wouldn’t be able to afford otherwise.

“Let’s say you qualify for a R1 million home loan, which means you’d need an income of around R26,000 a month.”

“You could make sure you qualify for this amount by applying for preapproval. But if you have a R100,000 deposit, you can shop for homes closer to R1.1 million without having to stretch your finances.”

“Bear in mind that at 7.25%, your instalments on a R1 million home loan will be just over R7,900 a month.”

Prospective buyers will need to decide, based on their personal circumstances and disposable income, whether they would prefer to buy the more expensive or more affordable home, which would save them on their monthly instalments.

In this example, opting for a R900,000 home loan on a R1 million house rather than the R1.1 million house would mean lower monthly costs.

“If you don’t foresee a need to cut your expenses, a deposit could help you buy a better home than you would otherwise be able to afford. Either way, a deposit gives you more options.”

Nedbank explained that a deposit also lowers the total amount of interest you pay over the term of your loan.

“Using our example of a R1 million home loan paid over 20 years at an interest rate of 7.25%, you can cut your total interest payments from around R897,000 to R807,000 if you put down a 10% deposit.”

Those savings climb to almost R135,000 with a 15% deposit and more than R180,000 with a 20% deposit.

According to Nedbank, saving for a depository could also give you more negotiating power since some banks may offer you a preferential interest rate on your home loan.

Any interest rate reductions on a home loan will boost your savings significantly over the long term.

For example, on a R1 million home loan, an interest rate of 6.75%, instead of the 7.25% used in the previous examples, would result in monthly savings of R300.

This would lower your monthly instalment to just over R7,600, saving you more than R70,000 in interest over 20 years.

“Saving for a deposit is a lot easier once you start looking at these numbers and see the difference a deposit can make,” Nedbank said.

“Remember these benefits when saving for your deposit starts feeling like a sacrifice, and your determination weakens, then keep saving.”

“Besides saving for a deposit for your home loan, you may want to consider saving towards bond and transfer costs, too.”