It was a simple question asked on Twitter: What would you do with a net salary of R51,000 per month?
It got 8 million views, had 136 retweets, and 1,347 quotes. And the comment thread is amusing.
The hypothetical question posed by Twitter user Clem Fandago, however, was raised following a news report that a Free State Department of Education official is being investigated by the Hawks, allegedly for using his position in the Department to negotiate deals for himself and his brother.Long story cut short, the man allegedly earns a net salary of R55,000, yet apparently owns four luxury vehicles and was able to buy two R2.5 million homes.
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This conundrum was then pondered by experts in the property industry, who questioned whether a salary of R51,000 – which would mean a gross salary of R70,000 – would actually be enough to cover both bond and new car repayments.
Although responses to the Twitter question were humourous, the question was interesting: What salary amount is needed to comfortably afford home loan repayments in the current high interest rate environment?
To settle the debate, ooba Home Loans chief executive Rhys Dyer did the maths.
“As a rule of thumb, your home loan should not exceed 30% of your gross salary per month. Based on this, you would qualify for a maximum home loan of just under R2 million.”
At the current interest rate of 11.75%, monthly bond repayments would be approximately R21,000 per month over a 20-year repayment period.
Dyer then took it a step further and calculated whether this net salary of R51,000 would be able to both a bond and vehicle repayment.
“As the industry standard, vehicle finance should not exceed 25% of your gross salary, so in this case, a vehicle repayment of R17,000 per month qualifies you to buy in the price range of about R750,000, using a five-year term.”
The official is said to own a Mercedes V-class 300d, a BMW X5, a Ford Wildtrak, and a Mini Cooper. Depending on the models, the Mercedes costs from R1.2 million, the BMW from R1.5 million, the Ford from R234,000, and the Mini Cooper from R450,000.
The maths therefore speaks for itself.
For normal people though, Dyer says it is “risky” to max out your spending on a home loan and vehicle finance.
“The amount left over, in this case, is R13,000 which is almost certainly not sufficient to cover any other debt obligations and general expenses.
He adds that ooba Home Loan’s latest data reveals that the average home loan repayment amongst its homebuyers is just over 20% of their gross income, comfortably below the 30% industry benchmark.
For those weighing up whether to buy a car or a house, property investor Ben Malapile says people, especially young people, often mistakenly believe they have to have millions to buy a property, and so buy a car instead. They don’t realise that the same car instalment can be used to pay the monthly instalment on a property.
“That car loses value the moment it's driven off the show room floor and can be stolen or hijacked. Property though, when bought right, will double in value in 10 years.
“The same hijackers can break into your house and take your personal belongings, but they can never steal that property from you. It will always be yours.”