RRandMath

Home loans · Stress-tested

How much house can I actually afford?

Banks will lend you more than you should take. This works backwards from the money you have left after debt, then shows you what happens when the rate rises.

R
Before tax. If you are buying with someone, add both incomes — and both debts below.
R
Car, student loan, credit cards, store accounts, personal loan. Not rent — that stops.
Banks often approve up to 30% of gross for the bond alone. Under 30% leaves room to live.
R
%
years
Maximum purchase price
R—
at an instalment of — a month, being 30% of income less your debt
  • Monthly room for a bond—
  • That buys a loan of—
  • Plus your deposit—
  • Maximum price—
  • Interest paid over the term—
  • At prime + 2%—
  • Extra needed then—
Banks assess on net income, credit record, existing obligations and the property itself, and often haircut commission or overtime. This is a budgeting tool, not an approval. It also ignores the upfront costs — work those out separately, because they come out of the same savings as your deposit.

The 30% rule and why it fails here

The 30%-of-gross guideline comes from countries with cheap credit and no transfer duty. In South Africa the bond is rarely the problem — the problem is everything that arrives with the property. Municipal rates, levies, homeowner's insurance, maintenance at 1% of the property's value a year, and a monthly instalment that moves every time the MPC meets.

Which is why the number that matters in the panel above is not the maximum price. It is the line that says what is left over.

Run it at prime plus two

A bond that is comfortable at 10,75% and impossible at 12,75% is not affordable, it is a bet on the Reserve Bank. The stress line above does that arithmetic for you: it holds the loan constant and reprices the instalment two percentage points higher, which is roughly what a bad eighteen months looks like.

If the stressed instalment is more than you could cover by cutting discretionary spending, reduce the price rather than increasing the term. Stretching to 30 years lowers the instalment and raises the total interest, which is how people end up paying for a house twice.

What banks actually look at

Do this in the right order: clear short-term debt, save the deposit and the transfer costs, get pre-approved, then shop. Pre-approval tells sellers you are serious and tells you your real ceiling before you fall in love with something you cannot have.

Next: the instalment on any specific price, or the cash you need on transfer day.