Average salary not enough now to buy average home

Homebuyers in South Africa now need to earn a gross salary of at least R53 000 a month to qualify for a 100% bond on a property costing R1,47m, which is the current national average home price.

"That's quite a shock for many consumers," says Gerhard Kotzé, CEO of the RealNet property group, "because the average gross salary, according to the latest employment survey by StatsSA, is only around R27 000 a month.

"What is more, buyers might require a household gross income of even more than R53 000 to qualify if they already have vehicle, credit card or other debt repayments to make each month, in addition to expenses such as food, transport, insurance, cellphone costs and school fees, all of which continue to escalate due to stubbornly high inflation."

As a general rule, he says, lenders don't want the monthly repayment on a new home loan to exceed 30% of your gross monthly income, and the repayment on a 20-year loan of R1,47m at the current prime rate of loan would be almost R16 000 a month - which co-incidentally is very close to the average take home (after tax) income as calculated by BankservAfrica in April.

"This means that it is going to take at least two average salaries to sustain a household that is paying off a home loan - and that it is now almost out of the question for a single buyer to obtain a loan to purchase the average-price home, unless they have managed to save a very large deposit or plan to use the proceeds from the sale of another property to reduce the size of the new home loan."

Indeed, a buyer earning an average gross salary of R27 000 a month and requiring a 100% loan would currently only be able to afford a home priced at around R740 000 - or less if they also have additional debts to repay.

"And this probably explains why we are seeing a significant increase in the number of friends, siblings and family members of different generations pooling their resources in order to qualify for home loans - and to make their monthly bond repayments more affordable."

Kotzé says other alternatives for single buyers or young people who don't even earn the average salary yet but are keen to buy rather than keep renting include the following:

* Seek out areas or types of accommodation such as sectional title apartments that are more within your financial reach and get a foothold in the market as soon as possible so that you can "trade up" when interest rates drop and housing demand and prices start to rise.

*Apply for a First Home Finance government housing subsidy that can be used as a deposit when applying for a home loan or used to reduce the size of an existing home loan and make the repayments more affordable. These subsidies are available to first-time homebuyers that are South African citizens who earn between R3500 and R22 000 a month and meet a few other criteria.(See https://www.nhfc.co.za/finance-solutions/first-home-finance/)

*Do everything you can to accumulate a deposit. Ask your parents or other relatives if they are able to contribute and help you become a homeowner, or perhaps if you can stay with them to save on rent and put that money towards a deposit. If you are already renting, move as soon as you can to more modest accommodation and put the difference towards a deposit.

    "The reason this is important is that having a deposit of just 5% available will reduce the qualifying gross income for a home loan of R1,47m to R50 500 a month, and reduce the monthly home loan repayment to R15 000. For single buyers aiming to buy a home costing R740 000, a 5% deposit will reduce the qualifying income to around R25 500, and the monthly bond repayment to a more affordable R7700.

   "In addition, being able to pay a deposit will show lenders that you are prepared to put your own money into your home and are good at managing your finances. This will improve your chances of being granted a loan and may even earn you an interest rate concession, especially if you apply for your home loan through a reputable bond originator like BetterBond."