How to save up enough for a house deposit

How to save up enough for a house deposit

The housing market is suffering and there are fewer and fewer people who can even afford the deposit on a house. Some banks are already requiring up to 20% of the price of a house before they will advance the bond.

Justmoney.co.za, SA's online guide to money asked the big banks to recommend a savings product that would help you to save for a house deposit.

So we started looking at a baseline R1 Million house and figured with a 20% deposit you would need to save R 200 000 to put down that deposit on your dream house. We also wanted to do it over a year so you can see how much you would have to save every month to get that deposit built up in a year's time.

Here are the products that the banks recommended:

Standard Bank

Standard has two products that they recommend: The Market Link and 32 Day Notice Accounts. The major difference between them is that you have instant access to the Market Link account while the 32 Day Notice requires, well, 32 days notice to withdraw funds. Based on current interest rates, which are subject to change, The 32 Day Notice account requires you to deposit R 15 800 every month and by the end of a year you will have R 200 155.12. With The Market Link account depositing R 15 800 per month would realise you R 200 126.21. By keeping your savings in the account you would have earned R 10 526.21 in interest!

Now, consider the amount that would be required as a repayment on a home loan of R800 000 (i.e. a R 1 Million purchase price less a deposit of R200 000.) A bond of R800 000 will require a monthly repayment of approximately R 10 534.32, at an interest rate of 15% over a 20 year period.

So by saving, you are in actual fact providing yourself with the following benefits:

- You are preparing yourself for the repayments required on the home loan, so that you can make sure that affordability will not be a problem.

- You are reducing the total value of your bond and as such the monthly repayments you would have needed without a deposit i.e. R13,167.90 vs. R 10,534.32 per month

- You are saving approximately R432 000 in interest on the R200 000 over the 20 year period

In today's current economic climate, saving is definitely a way to start improving your financial situation.

Nedbank

Nedbank recommended their Park-It product. This is a fantastic savings vehicle that allows you access to your cash with only a 24 hour notice period after you have kept the cash in your account for at least 14 days. They currently offer a top end savings rate of 11% which means that you would have to deposit R 15 843 per month for the whole year in order to get that R 1 Million Rand house. An account that does not pay any interest would require you to deposit R 16 667 per month, but the Nedbank Park-It account delivers a very competitive rate of interest.

FNB

FNB recommended three of their products the 32 Day Interest Plus, the Money Market Investor and the Flexi-Fixed deposit account. The 32 Day Plus offers an interest rate of 9.45%, The Money Market Investor offers 10.40%, and the Flexi-Fixed offers 10.75%. As the amount kept in your deposit account increases you get a higher rate of interest.

ABSA

ABSA recommended their 32 Day Notice or Moneybuilder accounts if you don't have a large lump sum to invest. The 32 Day Notice pays up to 10.45% interest and the Moneybuilder up to 9.90%. The Moneybuilder has the bonus of allowing two 2 free inter-account transfers a month so you can use it to pay bills with the interest if you have a large balance and not touch the capital. But for saving up for a house the 32 Day Notice pays better interest.

In conclusion, we can see that it takes a lot of discipline and the ability to put away large sums of money every month in order to save up for a house deposit under the current economic climate. The best thing to do is to set yourself a savings plan, find the best savings account for you and then be disciplined and set up an automatic debit from your account to your savings every month. If you never see that money you will never miss it, but you will be in for a nice bonanza after your savings period is completed.

Justmoney says that the more you save the safer the economy gets and when things start to come right again, you could be looking a tidy deposit for a styling new house.

A version of this article can be found on imod.co.za