The major banks have made a move towards bringing their criteria for lending to civil servants and private sector employees into line.
In the past, the banks treated public sector and private sector housing subsidies in different ways.
This meant that civil servants could afford to buy more expensive homes than those who received subsidies from private employers.
Banks use as a rule of thumb: that you should spend between 25 to 30 percent of your pre-tax monthly income on your monthly home loan instalment. Generally, if your monthly income is below R3 500, the 25 percent guideline is used. If you earn more than R3 500, the guideline is 30 percent.
But banks also look at your situation - how much money you have left after pension fund deductions, medical aid contributions and other debts. Your assets and liabilities,too, are considered.
BACKGROUND
Traditionally, if you worked in the private sector, any housing subsidy was added to your income and the 25 to 30 percent guideline would apply to the total.
So if you earned R4 250 a month, including the subsidy, your bank calculated that you could spend R1 275 (30 percent of R4 250) on your home loan repayments, which meant you qualified for a loan of just over R75 000.
This was based on an interest rate of 20 percent and a term of 20 years.
But for civil servants, while the 25 to 30 percent guideline was also applied to the basic salary, the housing subsidy was added on afterwards.
This meant that if you earned R3 500, with a R750 subsidy (equivalent to R4 250 as a private employee) the banks calculated you could afford to spend R1 800 on monthly home loan repayments.
This meant you could afford to borrow almost R106 000 to buy a home - about R30 000 more than if you were in the private sector.
SUBSIDIES CALCULATED SIMILARLY
About five years ago, the banking industry realised that civil servants were battling to meet their monthly home loan instalments.
The industry, in consultation with government, recommended eliminating this anomaly and proposed phasing in common lending criteria during 1998.
But banks have not all tackled the issue in the same way.
Whether you work in the public or the private sector, First National Bank and NBS now add your housing subsidy to your total income and work out what you can afford to spend on monthly repayments by taking 25 to 30 percent of your total monthly income.
Your spouse's income, as well as bonuses and overtime, may also be taken into account.
Absa and Nedcor's (Nedbank, Permanent Bank and People's Bank) rule is that if you are a civil servant, you can afford to spend 30 percent of your monthly income on repaying your loan, irrespective of what that monthly income is.
For private sector borrowers, Nedcor applies the 30 percent rule, if you earn more than R3 500 - but 25 percent, if you earn less than R3 500.
Standard Bank, however, has reassessed its decision to level the calculation of housing subsidies of civil servants and private sector individuals.
Except for those private sector employees in schemes similar to the government housing subsidy scheme, the old rule applies to private sector employees - the subsidy is added to the salary in calculating what you can afford.
On the other hand, if you get a government subsidy, Standard now calculates your loan as follows:
* Twenty percent of your total household income, if you earn R2 500 a month; or
* Twenty five percent of your total household income, if you earn between R2 500 and R4 000 month; or
* 27,5 percent of your total household income, if you earn between R4 000 and R6 000 a month; or
* Thirty percent of your total household income, if you earn more than R6 000 a month.
Also taken into account is:
* The after-tax amount that you get from your housing subsidy.
The loan must be less than 90 percent of the assessed value of the property. If it is more, additional collateral of at least 10 percent must be provided by your employer or pension fund. This means that civil servants can afford a slightly higher loan, but the difference is not as great as it was a few years ago.
Dave Wright, of Standard Bank, says a factor which justifies Standard Bank's new approach is that where your employer deducts your home loan repayment from your salary and pays it over to the bank, there is a lower probability of you defaulting on your loan.
Also, some employers offer guarantees to the bank as security for loans made by the bank to their employees.