What bond can you afford?

"This happens to buyers right across the price spectrum," says Rudi Botha, CEO of mortgage originator PA BetterBond, "and usually the response is a compromise — or rather, a decision to sacrifice some of the items on the wish list in order to stay within budget.

"But there are circumstances in which a responsible buyer could justify stretching a self-imposed spending limit in order to buy a dream home."

These occur when interest rates are low and likely to stay that way for some time, and when house prices generally are showing good growth — which is exactly the current situation in many parts of South Africa.

"With interest rates attractively low at the moment, many buyers can qualify for a somewhat higher mortgage than they originally thought, and afford a deposit of 10 to 20 percent more easily. And as the property increases in value they will of course reap the total benefit, not just the increase on their deposit.

"The buyer who purchases a R600 000 property that experiences an appreciation of just 10 percent a year over just two years, for example, would show a gain of more than R120 000 for a R60 000 deposit — a much better return than on many other investments.

"What is more, this buyer will already have bought his 'perfect' home and is thus unlikely to incur the costs of moving again for some time."

The downside
However, Botha admits, there is a potential downside to this scenario. House price growth can stop and even fall. Interest rates, regional and global economies can drastically affect the value of the house.

Also, the days are gone when an average employee could be certain of a job for life, and that dream home could become a financial millstone if one of the two salaries needed to pay for it dries up.

"So the choice remains with the buyer," says Botha. "It all boils down to the ability to take risk, and the savvy buyer will not stretch their budget unrealistically."