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Jason

Maximum Mortgage % In Relation To Net Income

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Ok, I've been having discussions with some friends about what the maximum you should pay on a mortgage in terms of your NET income for a FTB. When I say FTB, I talking about someone who's in a position to buy. I'm made the below assumptions:

+ >25% deposit (hence the best mortgage rates) - saving for years...

+ late 20s

+ Single

+ median average salary (say around £25k)

+ secure job

+ No other debt, or other financial commitments

The type of mortgage would be:

+ 25year repayment mortgage

+ long term fixed (5years or longer, preferably 10years)

Now, I'm talking about the maximum % of net income (after all taxes) the mortgage could be; not necessarily what should be the norm.

Forget about the nominal amount of the mortgage, I'm interested in what the % of the net income you should pay on the mortgage.

So, vote away...

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Ok, I've been having discussions with some friends about what the maximum you should pay on a mortgage in terms of your NET income for a FTB. When I say FTB, I talking about someone who's in a position to buy. I'm made the below assumptions:

+ >25% deposit (hence the best mortgage rates) - saving for years...

+ late 20s

+ Single

+ median average salary (say around £25k)

+ secure job

+ No other debt, or other financial commitments

The type of mortgage would be:

+ 25year repayment mortgage

+ long term fixed (5years or longer, preferably 10years)

Now, I'm talking about the maximum % of net income (after all taxes) the mortgage could be; not necessarily what should be the norm.

Forget about the nominal amount of the mortgage, I'm interested in what the % of the net income you should pay on the mortgage.

So, vote away...

What you're really asking is what is the income multiple.

It depends on so many other factors... job security, financial backup plans, job prospects, career progression, financial climate...

In todays climate, then I'd suggest the number should be zero.

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What you're really asking is what is the income multiple.

It depends on so many other factors... job security, financial backup plans, job prospects, career progression, financial climate...

In todays climate, then I'd suggest the number should be zero.

Well no, because a multiple is too straight forward. It could be based on a very higher interest rate (due to many factors) and other commitments, whereas the % of net income would be more accurate. I'm assuming a long term fixed to cushion against any IR increases.

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Tricky one, this, as it depends on the income. Given that you're using someone on £25k, so taking home £1500ish (?), I'd have thought about £600 would be pretty sustainable. Said calculations are based on the finances of a friend who payed a similar level of rent on five grand's less salary, and whose finances weren't sustainable.

For what it's worth, I'm defining "sustainable" as it being possible to cover all required expenses (insurance, travel costs, food, clothing, council tax, utilities, yada-yada) without the use of unrepayable borrowing, but with a fair degree of frugality.

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interesting as this pretty much describes me.

renting i spend about 30% of my income on rent and bills, in terms of being able to afford to pay and still live comfortably as i do now, i could pribably cope with 60% as an absolute max, with no capacity to save. although i would consider myself pretty good at living on a restricted budget.

in reality id like to spend about 1/3rd of my income on a mortgage, but in london the chance of this is pretty minimal even with a big crash. sharing with my g/f makes it more possible but then your relying on duel incomes and it all changes

Edited by dandandan

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I'd say about a third of houshold income. Housing is obviously going to a major expense each month, but at a third of income you have a nice ballance, with another third covering essential living expenses, and then a further third for doing what you want with or saving for a rainy day.

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I think the word you are looking for is "affordability"

I thought that was ignored on this site?

It is, but that's only because it's been an excuse for lenders to ignore, well, actual affordability. It's the difference between being able to go out and buy a brand new 911, and being able to genuinely afford to go out and buy a brand new 911. It's a ******ing massive difference.

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I think the word you are looking for is "affordability"

Yep.

The above, I think, describes quite a few on here. I'm kind of asking for myself too, although the figures are a bit more (higher salary, bigger deposit). I would have said 40% to be the max, which equates to 4.3ish times my salary.

Ideally I would have gone for 30%ish, but to be fair I save roughly half of my net income while paying 20% of my income on rent+house bills (rent in a shared house).

I'd quite like everyone to vote, to see it all in one place.

Over 55% is crazy imo.

Edited by Jason

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I'd say about a third of houshold income. Housing is obviously going to a major expense each month, but at a third of income you have a nice ballance, with another third covering essential living expenses, and then a further third for doing what you want with or saving for a rainy day.

I would agree with about a third as being desireable, but the OP wanted maximum so I went for 40%.

Given a median wage and costs of bills council tax etc going past 40% means you are really going to struggle to put anything away for emergencies.

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Difficult one this;

Example 1

Takes home £1500

mortgage payment £750 = 50% of take home and has £750 to pay bills/live on

Example 2

Takes home £3900

mortgage payment £2500 = 64% of take home... but £1400 left to pay bills/live on.

I'll have option 2 please.

d'oh, just seen based on your assumptions. I'd say this person should pay no more that 50%

Edited by Breck

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Difficult one this;

Example 1

Takes home £1500

mortgage payment £750 = 50% of take home and has £750 to pay bills/live on

Example 2

Takes home £3900

mortgage payment £2500 = 64% of take home... but £1400 left to pay bills/live on.

I'll have option 2 please.

You're far more stuffed in the second case if you lose your job. I'd also hope that someone capable of commanding that kind of salary would resent handing over so much of it to a bank in interest payments.

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30% of take home pay with a scenario of base rates near their long term average. I believe thats around 8%. Makes the house a lot cheaper doesnt it?

djmgw

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Have I missed something and just been transported to the future where all our lives are over controlled and we are told what to think.... get real... different banks will have different maximums for now and evermore, some will be more relaxed than others...... if you can find the funds it should be down to individual judgement on how much you borrow... some people are comfortable borrowing more, others less so... the day a state imposed maximum comes in is the day I depart for a country with some civil liberties.

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the day a state imposed maximum comes in is the day I depart for a country with some civil liberties.

I'm not suggesting that at all. I was just after opinions...

The max you can borrow from a reputable lender (that I have found) is 4.5x gross salary taking into account 50% of bonuses.

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Have I missed something and just been transported to the future where all our lives are over controlled and we are told what to think.... get real... different banks will have different maximums for now and evermore, some will be more relaxed than others...... if you can find the funds it should be down to individual judgement on how much you borrow... some people are comfortable borrowing more, others less so... the day a state imposed maximum comes in is the day I depart for a country with some civil liberties.

missing you already.

had we had some limits, the Uk economy would be sitting pretty as I write.

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So some people actually think a FTB should pay >55% of income to have a roof over their heads!

Madness.

Then again, some people would be happy to place any level of economic restriction on others rather than deal directly with central problem - real estate

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Guest DissipatedYouthIsValuable

Where's the 10% option?

I'd rather spend my money on something a little more interesting than some squashed dirt lumps held together with a bit more dirt.

If you need a mortgage, you can't afford it.

Edited by DissipatedYouthIsValuable

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The lender and borrower can decide the size of a loan

I would agree if it wasn't government policy to spend taxpayer money bailing out the institutions after they become insolvent.

That kinda removes the hazard that would make your system work.

Edit to add: In response to the OP.. I voted for a nominal 33%, but honestly as others have said it makes a huge difference depending on how much you earn and whether there are two of you.

Edited by libspero

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So some people actually think a FTB should pay >55% of income to have a roof over their heads!

Madness.

Strangely enough, the exact same number of people so far as think mortgages for FTB's on 25K should be capped at <20% of net income. Which would mean no housing ever got built, as the house price would be less than the construction price, even if land was free.

Madness.

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15%.

With huge deficits, pensions, tax rises and everything else, somethings got to give. The less money people have to spend on mortgages, the better.

+1

I rent and pay pretty much 20% of my take home on rent(inc heating).

whilst I could rent for 15%, it would mean,.. having neighbours outside my comfort zone.

but buying... I expect rent to be higher since I dont need to fix things. For the same place, I would expect to spend 15% of my salary on the mortgage, the other 5% would go on replacing the roof, washing machine, heating, repointing blah blah.

so, yes 15% is a good ballpark figure.

maximum?? if house prices were at a sensible level, there would be no need for maximums ffs. no idiot would borrow so much ;)

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