More expensive to buy a house

Johannesburg – It is more difficult to buy a house than ever before notwithstanding lower interest rates, market statistics show.

According to Absa’s latest house price index, prices were 15.2% higher last month than a year ago.

The average house price is R1m.

There are several factors affecting the affordability of housing.

These include the broader economic environment, household indebtedness, banks' lending criteria and the National Credit Act.

There has also been a recent decline in calculations of affordability, how house prices relate to household disposable income, and bond payments to disposable income.

In terms of the Credit Act, a household's gross monthly income is no longer the absolute determinant when it comes to buying a house; instead, is the net disposable income, says Jacques du Toit, senior property analyst at Absa’s home loan division.

A prospective homebuyer is granted a mortgage loan on the basis of his net disposable income which is the income remaining after all household expenses have been deducted.

These expenses include statutory deductibles, such as income tax, pension contributions and unemployment insurance, says Du Toit.

In addition, all household expenses such as school fees, food and petrol, insurance premiums and investment contributions are factored in as well as payments on credit agreements such as car payments, bonds on other properties and retailers’ accounts.

The applicant's risk profile is also examined, as well as the relationship of the home loan to the value of the property, the period of the loan and the interest rate attached to the loan.

Affordability shrinking

For a household to be able to buy an average R1m house at the current 10% interest rate it will have to afford a monthly bond payment of R9 650 over 20 years.

South Africa’s nominal average annual disposable income per capita was R29 553 in 2009, slightly up on the R28 635 for 2008.

Du Toit says the affordability of accommodation, which had improved in the past two years as a result of house prices and interest rate movements, has recently begun to deteriorate.

The affordability of housing is calculated by examining the relationship between house prices and household disposable income, as well as that of bond payments to disposable income.

Nominal house prices increased 4.4% year-on-year in the fourth quarter of 2009, while household disposable income rose 2.7%.

House prices have therefore risen more quickly than income, which means affordability comes under pressure, he says.

The ratio of bond payments to disposable income also increased in the fourth quarter.

Du Toit says this is the net result of rising house prices, the increase in household disposable income and interest rates remaining steady over the quarter.

Consumers had no support from an interest-rate cut during the quarter.

Other factors playing a role in affordability are rising property taxes and levies, as well as increasing electricity and water tariffs.

These significantly increase the cost of keeping a house.

He said the above factors make it clear that consumers are being affected on all sides in terms of affordability, which makes buying a house so much more difficult.

 - Sake24