Before applying for a home loan, buyers need to run through a series of checks to assess whether the property of their dreams is affordable. Determining the right price range is an essential first step to avoid wasting time when looking for properties.
The bond that prospective homeowners will be able to afford depends on a number of factors, including take-home pay, and the size of the deposit.
For those in formal employment in South Africa, the current average nominalised monthly take-home pay is R15,042, while in real terms, the average take-home pay is closer to R12,412. Take-home-pay – also known as disposable income – is the number that prospective home buyers should use to work out the price of the home they can afford.
Using the rule of thumb that your bond repayment should be equal to around a third of this amount, or between R5,000 – R6,000, a solo buyer in the current market would generally be looking at a home priced between R600,000 – R700,000 Property24’s affordability calculator shows. This factors in an interest rate of 7.5% and a bond repayment period of 20 years.
While these calculations are a helpful starting point, they do not tell the full story, as buyers who can pay a deposit will obviously be able to buy higher-priced properties.
Additionally, couples who are buying a home together can use their total household disposable income to gauge how much they can afford to pay on a bond.
If they are both earning the average take-home salary, for example, and only have one set of expenses and few additional costs to pay, they will likely be able to afford a home in the R1.3 million+ price range.
The below shows the types of homes you can buy in the Western Cape, KwaZulu-Natal, and Gauteng based on the above values.
1 bedroom apartment for sale in Douglasdale (Gauteng) – R700,000
2 bedroom townhouse for sale in Bloubosrand (Gauteng) – R1.25 million
2 bedroom apartment / flat for sale in Morningside, Durban (KZN) – R675,000
2 bedroom house for sale in Clarendon, Pietermaritzburg (KZN) – R1.25 million
2 bedroom apartment / flat for sale in Montana, Pretoria (Gauteng) – R685,000
3 bedroom townhouse for sale in Rietvalleirand, Pretoria (Gauteng) – R1 250 000
2 bedroom apartment for sale in Fairview Golf Estate in Gordons Bay (Western Cape) – R700,000
2 bedroom apartment for sale in Melkbosstrand (Western Cape) – R1.25 million
Interest rate hikes
An increase in the repo rate by 25 basis points earlier in November, to 3.75%, has left many homeowners doing mental calculations on their monthly home loan repayments.
South Africa is likely to see at least three further interest rate hikes in 2022 as the South African Reserve Bank (SARB) has indicated that it will begin unwinding its accommodative monetary policy stance, say economists at Momentum Investments.
Ooba Group chief executive officer, Rhys Dyer, believes that it is still a good time to be a homeowner and that the increase will have little effect on the sustained demand for home loans. “The repayment amount on a R1 million bond will increase by R151 per month – from R7,753 up to R7,904.
Data from bond originator, Ooba shows that the average house price in the third quarter was up 5.4% from a year ago, to R1.375 million, and up 3.2% for first-time buyers, to R1.117 million. The average age of a bond applicant was 38, three years higher than the average age of a first-time buyer.
It means that the majority of the country’s homeowners will only have to budget for an increase of under R200 on their monthly bond repayments, said Dyer. “A marginal increase in the repo rate was imminent. It’s important for homeowners to budget accordingly and to plan for every eventuality.”
Looking to the higher end of the home loan spectrum, Dyer said that the repo increase stands to impact this bracket albeit not significantly. “Home loan repayments on a home purchased for R2.5 million will increase by R377 per month – up from R19,382 to R19,759) while homes purchased for R3 million will increase by R452 per month – from R23,259 to R23,711,” he said.