Why only 16% of South Africans can afford homes over R1.3 million

Recent research by an independent economist reveals that less than 16% of South Africans can genuinely afford homes priced above R1.3 million. This finding underscores a growing disparity between loan approvals and actual affordability, raising questions about the financial sustainability of homeownership for the average buyer.

According to Henri Le Grange, certified financial planner® at Old Mutual Personal Finance, qualifying for a bank loan doesn’t necessarily mean you can afford all the costs that come with owning a home. “The affordability gap often arises because banks assess loan eligibility primarily based on income thresholds, without considering your broader financial plan,” Le Grange explains.

Banks typically evaluate affordability based not only on gross income but also on disposable income, net income, and previous monthly expenses. “However, they look at past data and may not account for additional costs that come with homeownership, such as maintenance, insurance, or the impact of interest rate changes,” Le Grange says.

“As a result, I’ve seen customers approved for loans that exceed their true repayment capacity, threatening their financial well-being. This disconnect highlights the importance of seeking professional advice before buying a home,” says Le Grange.

Research by Izak Odendaal, investment strategist at Old Mutual Wealth, highlights key reasons why owning a home remains out of reach for many South Africans: stagnant wages, rising inflation, and higher interest rates. "South Africa’s high interest rates and rising property prices have made homeownership increasingly difficult. Many prospective buyers have been locked out of the market due to these combined factors, resulting in record-low affordability levels in the housing sector,” he said.

The crucial role of financial advice

“Buying a home is one of the biggest financial decisions you’ll ever make, and it’s easy to underestimate the true cost of ownership,” notes Le Grange. “Many customers also overlook the ongoing costs tied to homeownership, such as maintenance, insurance, property taxes, and utilities—expenses that can place additional strain on household budgets over time.”

He explains that a financial adviser can help customers look beyond simply qualifying for a loan and ensure they are financially prepared for the long term. “Many customers focus only on whether they can afford the loan repayment, often neglecting their long-term goals. It’s not just about paying the bond—you need to plan effectively to secure your long-term financial well-being,” he adds.

Working with a financial adviser helps customers create a realistic budget and prepare for both upfront and long-term costs. “A solid financial plan ensures you’re ready for the responsibilities that come with homeownership,” says Le Grange. “The goal is to help customers avoid borrowing more than they can manage and stay financially secure in the future.”

Le Grange offers practical steps to check housing affordability before committing to a home loan:

1. Prepare for Ongoing and Unexpected Costs.
2. When buying a home, don’t just budget for the deposit and monthly home loan payments. Be ready for other costs, such as repairs, maintenance, and higher utility bills. There are also transfer duties, conveyancing fees, and bond registration costs, which customers often overlook. These costs can arise unexpectedly, so it’s important to set aside extra money to cover these expenses and avoid financial strain.
3. Test Your Ability to Make Home Loan Repayments.
4. Before committing to a home loan, try putting aside the amount you would pay each month into a savings account. This will help you see if you can afford the repayment comfortably, and if necessary, adjust your spending habits to make sure you’re ready for the commitment.
5. Think About Changes in Interest Rates.
6. Interest rates can change, which means your home loan repayments may go up in the future. It’s a good idea to think about how a rate increase could affect your budget and make sure you’re in a position to handle any changes to your repayment amount.
7. Choose a Loan Term That Fits Your Budget.
8. When taking out a home loan, think about how long you want to pay it off. A shorter loan term will mean higher monthly payments, but you’ll pay less interest overall. A longer loan term can lower your payments, but you’ll pay more interest in the long run. Choose a loan term that works for your budget and future needs.
9. Speak With A Financial Adviser And Have A Financial Plan in Place
10. A financial adviser can help you look at your overall financial situation and create a plan that works for both your short-term and long-term goals. They can also highlight any risks or hidden costs and suggest the best strategy for managing your home loan while keeping your finances healthy.

In a challenging economic environment, affordability and financial resilience have never been more important. “Now more than ever, making informed financial decisions is key to building a secure future. Speaking to a trusted financial adviser can help ensure your choices support both your immediate needs and long-term goals," Le Grange says.

PERSONAL FINANCE