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The SA Reserve Bank's decision to hike interest rates yet again means that South Africans now have to earn at least R43 000/month to afford the average priced, middle-sized house.

The calculation is based on the traditional mortgage repayment ratio of 30% of gross household income and Absa's latest housing data which shows that house prices rose an average 8,7% (y-o-y) in March this year to around R980 400.

If the average priced house of R980 400 is financed with a 100% mortgage over 20 years at the new prime rate of 15%, the monthly mortgage repayment amounts to about R12 912. SA families therefore need to earn a gross household income of just more than R43 000/month to qualify for a mortgage loan of this size.

Much less affordable
Two years ago, SA homebuyers were paying 40% less in monthly mortgage repayments for the average priced, middle-sized house. Absa figures show that in March 2006 the average SA house cost R779 1882.

At the then prime interest rate of 10,5% the monthly repayment on a 100% mortgage amounted to R7 786. At the time SA families needed a monthly income of around R26 000 to qualify for a mortgage loan to buy the average priced house - R17 000/month less than what is needed to buy the average priced home today.

These calculations illustrate just how much less affordable housing has become. And although the introduction of the NCA in June last year means that banks no longer use the 30% flat rate as the only criteria to determine how much homebuyers can borrow, it remains a useful benchmark to determine how affordability levels have changed.

(Property24/Joan Muller)

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