The affordability assessment is a structured evaluation of an applicant’s existing debt repayments and household expenses against net monthly income. Its purpose is to ensure there is sufficient disposable income to repay a new home loan instalment without creating financial distress.
Key Takeaways
- Existing Debt Directly Affects Home Loan Approval: Banks assess total monthly debt repayments, credit history and disposable income before approving a bond, and excessive commitments can lead to rejection.
- Layered Borrowing Reduces Affordability: Even small unsecured loans, credit cards and vehicle finance combined can significantly lower borrowing capacity for a home loan.
- Well-Managed Credit Can Strengthen Your Profile: Consistent, on-time repayments improve credit scores and increase the likelihood of qualifying for long-term finance such as a mortgage.
About Arcadia Finance
Apply for your loan with confidence through Arcadia Finance. There are no application fees, and you can compare offers from 19 trusted lenders, all registered with South Africa’s National Credit Regulator. Enjoy a simple process designed around your financial needs.
Multiple Credit Agreements are Common
Many South Africans hold more than one credit agreement. These often include vehicle finance, unsecured personal loans, retail accounts and credit cards used for deposits or daily expenses, according to Bongani Gwexe of the National Credit Regulator.
Layered borrowing has become typical as households manage rising living costs and limited income growth.
Even small loans can significantly reduce home loan affordability when combined, as banks assess total monthly commitments rather than individual debts in isolation.
Average Credit Amounts in South Africa
According to the National Credit Regulator:
- Short-term loans average around R2 000, typically ranging from R1 000 to R8 000
- Unsecured personal loans range from about R8 600 to R87 000
- Credit card limits average roughly R19 000
- Vehicle finance averages about R390 000
- Mortgage bonds average approximately R1.4 million
| Credit Type | Average Amount |
|---|---|
| Short-Term Loans | ± R2 000 |
| Unsecured Loans | R8 600 to R87 000 |
| Credit Cards | ± R19 000 |
| Vehicle Finance | ± R390 000 |
| Mortgage Bonds | ± R1.4 million |
Mortgages remain the largest component of consumer credit nationally.
Debt Across Income Bands
Debt exposure differs by income level, yet debt counsellors note that borrowing is usually layered rather than isolated.
Lower-income consumers often carry unsecured debt such as payday loans and store accounts, frequently used for essential expenses.
Middle-income households typically hold credit cards, personal term loans and vehicle finance, often to manage household cost pressures.
Higher-income earners generally have mortgage bonds, vehicle finance and structured loans. Although these are asset-backed, they still place pressure on monthly cash flow.
Debt becomes problematic when instalments absorb too much of monthly income.
Keeping total debt repayments below a manageable share of income improves both financial stability and home loan approval prospects.
How Banks Assess Home Loan Applications
Under the National Credit Act, banks must evaluate creditworthiness and affordability before approving a bond, explains Kay Geldenhuys of ooba Home Loans.
The process includes:
- Reviewing the applicant’s credit bureau record
- Checking repayment behaviour
- Assessing total indebtedness
- Calculating disposable income after expenses
A poor credit record or excessive debt-to-income ratio can result in rejection. Applicants considered over-indebted will not qualify.
The Role of Unsecured Debt
The National Debt Counselling Association says unsecured borrowing often reflects financial pressure rather than reckless spending. Many households use credit for furniture, school costs and basic needs amid rising electricity tariffs, fuel prices, medical aid contributions and inflation.
Where affordability is strained, improved budgeting and building emergency savings are recommended. If debt has already become unmanageable, regulated debt restructuring may be necessary.
Early intervention reduces the compounding effect of interest and improves long-term financial outcomes.
The Bigger Credit Picture
The NCR reports total outstanding consumer debt of approximately R2.44 trillion. Mortgages account for 52 percent of this total, followed by secured credit such as vehicle finance, credit facilities including credit cards and store accounts, and unsecured credit.
In the latest quarter, 18.5 million credit applications were submitted, with 67 percent declined, according to the Credit Association of South Africa. While demand for credit remains high, lending standards are tightening.
Lower-income borrowers tend to seek smaller unsecured loans, while higher-income earners carry larger secured debts.
Existing Debt and Bond Approval
Existing debt is central to bond approval decisions. Lenders assess:
- Debt-to-income ratios
- Repayment history
- Credit score
- Overall exposure
Not all debt is negative. Well-managed credit can strengthen a credit profile and demonstrate financial discipline.
For many consumers, smaller regulated loans provide an entry into the formal credit market. When repaid on time, they build a track record that supports future access to long-term finance, such as a home loan.
Reducing revolving credit balances before applying for a bond can meaningfully improve affordability calculations and increase the likelihood of approval.
Conclusion
South African consumers must recognise that every loan commitment influences their ability to qualify for a home loan. While credit can serve as a useful financial tool when managed responsibly, layered debt reduces disposable income and directly affects affordability assessments conducted by banks. Maintaining a strong repayment history, keeping debt-to-income ratios within manageable levels and addressing financial strain early can significantly improve the chances of securing long-term property finance and building sustainable wealth.
Fast, uncomplicated, and trustworthy loan comparisons
At Arcadia Finance, you can compare loan offers from multiple lenders with no obligation and free of charge. Get a clear overview of your options and choose the best deal for you.
Fill out our form today to easily compare interest rates from 19 banks and find the right loan for you.
