Picking the right home for your pocket

Twenty years ago, homebuyers in SA needed a gross income of just R19 000 a month to qualify for a 100% home loan to purchase an average-price property.

Today, according to property data company Lightstone, the average home price in SA is just over R1,4m - and that means that buyers need a gross monthly income of almost R48 000 if they want to purchase such a home with a 100% home loan, at the current prime rate of 10,75%.

However, the latest available income figures from StatsSA show that the average gross salary in SA is currently just under R25 000, so homebuyers would need to put two average incomes together to qualify to buy an average-price home.

What is more, there is another number that lenders look at to ensure that prospective buyers would have enough money to afford a monthly home loan instalment in addition to their other necessary expenditure on food, transport, utilities, and other debt repayments.

This is their actual take-home or disposable income (after tax, pension, medical and other deductions) and, according to BankservAfrica, the average take-home pay in SA is currently only around R15 000 a month.

And the minimum monthly bond repayment on an average-price home would curtly absorb just over R14 000, or almost 50% of the monthly disposable income in a typical two-income household, making it very unlikely that those buyers would be granted a bond of that size.

So what's the answer for single buyers, or couples who currently earn less than the average? How much house can they actually afford, and what can they do to boost their buying power?

For single buyers with an income of R25 000 a month, the maximum bond that lenders would consider would probably be around R730 000 - and then only if they didn't have many other debts to pay out of their disposable income. 

Similarly, for dual-income buyers earning less than the average, most lenders would grant a bond based on the repayment being around 30% of their joint gross salaries. So if their monthly earnings total R30 000, for example, the maximum bond that lenders would consider would probably be around R885 000.

Buyers who want to buy bigger and more expensive properties can achieve this by first saving up a sizeable deposit, and being content to borrow only 80% or 90% or the purchase price.

They might be able to boost these savings by finding a part time job, selling any unused or unwanted things, and putting any bonuses or monetary gifts toward the deposit.   

However, this could take many months, and they would still also need cash to pay bond, legal and transfer fees. Which is why most first-time and single buyers will opt to buy smaller and less expensive properties, with a view to upgrading once these homes have increased in value.

An alternative to that is to buy an older home that costs less because it needs some renovation but that has enough space to enable them to rent out part of it to help pay for the improvements. In this way, they eventually get to own a bigger home that has been upgraded and avoid having to move.