For those in formal employment in South Africa, the current average monthly salary is just under R22 400* – but after deductions for things like tax, pension and medical aid, the average take-home salary** is more like R15 900.

“And take-home-pay – also known as disposable income – is the number that prospective home buyers should really be using to work out what price home they can afford to buy,” says Gerhard Kotzé, MD of the RealNet estate agency group, who notes that there is some concern now that the first-time buyers who have rushed into the market in response to this year’s extreme interest rate cuts may have trouble sustaining their bond repayments if other costs like fuel, electricity, water and municipal rates continue to rise.

So how much home can you buy if you earn the average take-home salary? “Using the rule of thumb that your bond repayment should be equal to around a third of this amount, or some R5300, a solo buyer in the current market would generally be looking at a home priced at R680 000 or less, depending on the interest rate they are being charged on their bond,” he says.

“This should ensure that they then have enough of their disposable income left to cover their other monthly expenses such as food, transport, school fees and insurance, as well as utility costs, municipal charges and any home maintenance tasks that may arise.”

Buyers who can pay a deposit will obviously be able to buy higher-priced properties, says Kotzé, “but most first-time buyers at the moment are applying for 100% bonds because they do not have a deposit saved up, or need whatever cash they do have for bond registration and the legal costs of transfer.

“And if you are able to obtain a 100% bond based on the income, employment, and credit qualification criteria used by the banks, it is often a better move to do so and then immediately pay any spare cash that you may have left over straight into your bond account. This will boost your credit score and immediately give you equity in your home. If you manage things well, it may also enable you to pay off your home much sooner than you expected and save on interest charges in the process.”

Meanwhile, he says, couples who are buying a home together can use their total household disposable income to gauge how much house to buy. “And if they are both earning the average take home salary, for example, and only have one set of expenses and additional costs to pay, they will probably be able to afford a home that costs somewhat more than double what the solo buyer can afford.

“However, our advice at this stage would still be to buy conservatively, and rather put any additional cash available into your bond account to reduce the capital balance of your home loan as fast as possible. This will provide you with some leeway if interest rates start to rise again, or in case one of you is retrenched. And if there is no emergency, you stand to save many thousands of rands on the overall cost of your home by paying it off years sooner than expected.

“In any case, your first steps when you start thinking of a home purchase should always be consult a qualified, experienced agent and a reputable bond originator to establish what your buying power is and what homes in your price range are available in your preferred area.”

*The latest available statistics from StatsSA show that the average monthly salary in the formal non-agricultural sector of the economy was R22 387 in February 2020. This is a -0,2% decrease when compared to November 2019, and an annual increase of 5,4%.

**According to BankservAfrica, the biggest automated payments system operator in SA, the average take-home salary in June 2020 was R15,869.

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