More than a quarter of South Africans polled in a PropertyGenie survey do not feel that it is reasonable to have to put a deposit down when buying a home. The survey, which was commissioned by bond-origination company ooba, found that 27% of respondents believe that a 100% bond is reasonable, while 42% said a deposit of 10% was reasonable.
This is an interesting perception by some potential homeowners that a deposit should not be a requirement. If one looks historically, deposits are the norm and it was only due to the property boom in the 2000s that banks started to waive deposits in a fight for market share.
Because property prices were rising so rapidly, banks could afford to take the risk of not having a deposit, because within a year the property would be worth more than the mortgage should the person default. That all changed in 2008.
Before 2000, it was virtually unheard of for a bank to offer a home loan without at least a 10% deposit requirement. In fact it was, until about 12 years ago, a requirement by the Reserve Bank for banks to charge a higher interest rate on home loans of more than 80% of the value of the property.
Banks have started to once again offer 100% loans, but only in very specific cases, and as Craig Deats of ooba points out, the banks will usually charge a higher interest rate for 100% home loans, and over time that higher interest rate will cost you more than a deposit will.
Having a deposit also gives you some leeway if you run into financial difficulties, as you would have equity in the property that you could draw on, or the bank may be more inclined to extend your repayment period to reduce your monthly mortgage payments.
Deats says that from ooba’s experience, a deposit makes it more likely that a home loan will be approved and that some sellers are more willing to accept an offer if the buyer has a deposit, as there is a higher likelihood that they will complete the sale.
The days of 100% bonds are most likely over for the majority of people, so saving up for a deposit on a first home will have to form part of your saving strategy.
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