Jump to content
House Price Crash Forum
Guest

What's The Most You Would Borrow In Relation To Salary?

Recommended Posts

Guest

Here's my conundrum... (we're looking at £200k houses, approx).

With our deposit, plus a mortgage of 3.75 * joint salary, we can get a 10 year fixed mortgage (75% LTV) which will give repayments of 40% of take home salary.

Lets say that by the spring, or summer 2015 houses that we like are within our budget.... do we go for it?

Is 40% of take home too much to borrow? Our rent is 37% of take home pay, so would not be a big step up in terms of outgoings.

The plan would be to save/overpay during the 10 year fixed period. At the end of the 10 years, my wife's pay would have gone up (kids at school) and I hope mine would too.

I know everyone is different, but this doesn't seem like exceptional risk to me. The main difference is of course that renting we don't have to pay for repairs.... whereas owning a place we have to stump up the cash for boiler/fences etc etc.

Share this post


Link to post
Share on other sites

Yes. Almost 4 times joint salary is too much risk. I doubt you'd actually get a bank to loan you this.

Your rent is too much for your income, too.

3 times highest + 1 times lowest as a maximum.

Share this post


Link to post
Share on other sites

Figures are slightly different to me, but that looks similar to my situation. It looks like a safe bet to put and keep a roof over your head for the for4seeable future.

Do you believe that interest rates will rise? I have my doubts that they will go up in the forseable 10+ years.

Share this post


Link to post
Share on other sites
Guest

Is 40% of take home too much to borrow? Our rent is 37% of take home pay, so would not be a big step up in terms of outgoings.

Have just checked, and actually mortgage would be 33% of take home, and current rent is 30% of take home. We've had a few changes recently (child care stopping, wife back to work after mat leave). So not quite as bad as I stated.

Also to add, that my wife's current salary is 16/37 of a full time one. In less than 2 years she'll up that to 25/37, so the original mortgage then will be 3.3 x our combined salary. At that point too the repayments will become a smaller chunk of our take home.

Edited by Guest

Share this post


Link to post
Share on other sites
Guest

Figures are slightly different to me, but that looks similar to my situation. It looks like a safe bet to put and keep a roof over your head for the for4seeable future.

Do you believe that interest rates will rise? I have my doubts that they will go up in the forseable 10+ years.

I do believe they will rise, but have based affordibility at the end of 10 years on mortgage rates of 7%. Even mortgage rates of 10% would be doable at a push.

Share this post


Link to post
Share on other sites

My points would be:

Pros:

1. You are already paying this for your rent so you can obviously afford it even though it is at the limits of what is considered affordable

2. You will be effectively saving by paying down the mortgage and having some certainty over where you and your family live

Issues to consider:

1. How will you pay for furniture, moving, appliances and repairs?

2. You will be stuck in the house in the event of negative equity so you need to be sure you really will be there for 5+ years at least

3. Are you likely to actually overpay your mortgage and reduce your payments? Or is that a "nice thought"?

4. Maybe look at getting on offset mortgage so you can draw down on your overpayments in case you have a financial issue.

Edited by katchytitle

Share this post


Link to post
Share on other sites
Guest

1. How will you pay for furniture, moving, appliances and repairs?

2. You will be stuck in the house in the event of negative equity so you need to be sure you really will be there for 5+ years at least

3. Are you likely to actually overpay your mortgage and reduce your payments? Or is that a "nice thought"?

4. Maybe look at getting on offset mortgage so you can draw down on your overpayments in case you have a financial issue.

1. We have most of what we need, and my wife is very much of the beg/steal/borrow/carboot approach like me.

2. We love where we rent, and have no intentions to move away.... thus we want to buy in the same area.

3. We're very frugal, and disciplined with savings... but of course if the boiler goes, or car paks up, that could change.

4. Yes must look into those... will cost out the options.

At these rates, as much as I possibly could.

Kind of my thinking... the 10 year fix is 4.4% or sommat silly.

In the end, even if we can afford the mortgage, it will come down to "is that house worth £200k?". At the moment, I reckon prices are at least 25% over valued where we are, and probably 40% over valued if you look at the long term average.

Share this post


Link to post
Share on other sites

Depends on how much buffer/cushion you have and what value the thing you are buying is in case you have to sell it to cover the debt.

A £50K morgage and a deposit of £300K would be ok.

A 5% deposit and a £300K mortgage would be frightening. The tax to buy/sell wopuld wipe out your savings/equity and if you loose your job and have no savings then you are £2K a month down before you get out of bed to sign out. i.e. you are screwed,

Debt is a bad thing.

Mortgage debt with massive taxation to buy a house is a very very very dangerous thing.

Is the much job security ?

Are wages rising ?

Are house prices at an affordable level ?

Are there any mega bubble mania anywhere ?

Share this post


Link to post
Share on other sites
Guest

I guess my question is more about what is a safe level of debt. As it stands my proposed £200k budget would not get enough house, so we'll keep on renting. Once prices become more sensible (25 or even 33% drops) then we'll seriously think about buying.

Share this post


Link to post
Share on other sites

I guess my question is more about what is a safe level of debt. As it stands my proposed £200k budget would not get enough house, so we'll keep on renting. Once prices become more sensible (25 or even 33% drops) then we'll seriously think about buying.

The safe level of debt is the amount that you can afford to service. However there is no correct answer. If you remain in stable employment for the lifetime of the mortgage with the same income it won't be a problem. If rates raise significantly or you lose a job from the equation then what?

Life isn't risk free, although if you take on the debt over pay the mortgage as much as possible. In the long run it's going to benefit you.

Share this post


Link to post
Share on other sites

My mortgage was 2 times joint income, 3.5 times my solo income.

Then I took a year off work (funded by redundancy), got the wife in the family way, and got a new job on less Money.

Now the mortgage is 4.2 times our income, the wife's income is currently zero.

I can cover the mortgage at 4x, but if i`d taken out an initial 4x joint salary mortgage it would now be over 9x our current joint income and unaffordable.

I suppose what I'm trying to say is shit happens. Build in a comfortable buffer.

Share this post


Link to post
Share on other sites

Have just checked, and actually mortgage would be 33% of take home, and current rent is 30% of take home. We've had a few changes recently (child care stopping, wife back to work after mat leave). So not quite as bad as I stated.

Also to add, that my wife's current salary is 16/37 of a full time one. In less than 2 years she'll up that to 25/37, so the original mortgage then will be 3.3 x our combined salary. At that point too the repayments will become a smaller chunk of our take home.

Bear in mind that your mortgage is the *minimum* payment on housing whereas your rent is the *maximum* - you should be setting aside at least 1% of your home's value each year to cover maintenance/renovation and you'll have other expenses such as buildings & contents insurance to cover on top of that.

A £150k mortgage at 4.4% gives monthly repayments of 825, implying that your joint net income is ~£2500/month. Totting up the full set of monthly expenses (maintenance fund at ~£170/month, council tax at ~£100/month, lecky + gas at maybe £100/month, water + broadband at maybe £40/month each) and you're just over half your joint salary even before you've started considering luxuries like food, travel expenses, clothes...

I really don't think it makes sense for you to borrow £150k at the moment, sorry. You could probably get approved for the loan, though!

Share this post


Link to post
Share on other sites

I think it depends on the house as well. If you seen a house house and think it will do for 5 years and then we will move to a bigger house it maybe worth borrowing a bit more and buying a house that will be big enough in the first place. Saving EA fee's stamp duty moving costs stress of selling and buying and many other costs.

Share this post


Link to post
Share on other sites

I don't think borrowing based on multiples make sense.

I would work out how much you need for everything else including savings and base the mortgage off of the money you have to spend on repayments. Factoring in interest rate rises etc is the tricky part.

Share this post


Link to post
Share on other sites

I don't think I'd feel comfortable borrowing more than could be serviced on a single salary and still leave enough over for a decent standard of living. I earn a fair bit more than my partner, so I reckon I'd need to have at least a year's mortgage payments in the bank to allow for my salary to be the one that vanishes unexpectedly - and for that reason, I'd probably go for an offset mortgage so that the panic-fund helps lower the mortgage cost.

I've also however started thinking about the size of the loan in terms of how many more years I'd have to keep working to pay it off entirely - £10K extra may work out as £50 a month more on the mortgage, but how many thousand hours more time at work would that take to pay back with compounded interest?

Share this post


Link to post
Share on other sites

What I would consider important is what is the current repayment amount based on?

If it's the wonderful "discount" rate of 2.79% or whatever, and it's still 30% of your income, then what plan is there in place when you drop into an SVR likely to be a min of 5% and quite possibly (in 2-5 years time) 6-9%....

If you're confident you can dent the mortgage amount outstanding / go offset / save a significant amount, then maybe it's viable.

You can't (IMHO), in this climate, count on prices rising and "living of the equity". Those days seem to have gone.

Also, are you relatively safe in your job? Are you likely to get pay rises (faster than interest rates rise) in the next 15-20 years?

We had a big shock when our (relatively good joint income c. £80k with 20+ hours overtime per week) situation changed having one, then two, then three kids. We had a 4.85x joint income mortgage and the costs of kids and burden of earning (and stupid £2000/month childcare costs when the wife was at work) meant it's been Lidl and 100,000+ mile cars for the last 5 years.

I was forced to change jobs and am happy to say that it's taken 7 years of 100 hours a week to bring the mortgage down to manageable levels where I am more senior now and can afford to not do so much overtime (thus enjoying time with the wife and kids - at least for 30 mins in the morning and evening).

Salutory tale.

Share this post


Link to post
Share on other sites

I don't think I'd feel comfortable borrowing more than could be serviced on a single salary and still leave enough over for a decent standard of living. I earn a fair bit more than my partner, so I reckon I'd need to have at least a year's mortgage payments in the bank to allow for my salary to be the one that vanishes unexpectedly - and for that reason, I'd probably go for an offset mortgage so that the panic-fund helps lower the mortgage cost.

I've also however started thinking about the size of the loan in terms of how many more years I'd have to keep working to pay it off entirely - £10K extra may work out as £50 a month more on the mortgage, but how many thousand hours more time at work would that take to pay back with compounded interest?

Depending how delusionally optimistic or realistic you are, it'll cost upwards of £20k but I think £30k is going to be closer to the mark when you take income tax and interest into account. To my mind an extra £10k spent is and extra year of average paid work.

Over the past 40 years it was not a problem because of wage inflation. Not looking good at the moment...

Edited by 8 year itch

Share this post


Link to post
Share on other sites

After a decade of trying to approach this from a sensible perspective I think i'd ignore all this advice. Borrow way more than seems sensible because when the shit hits the fan the govt will make sure you come out of it ok. Right now I have a £300k deposit and me and the missus have a £60k combined wage. We are looking at a nice two bedroom (three if you don't want a dining room) terrace and so need to borrow just under 18x our salary to buy the house next door to the one we are renting.

Share this post


Link to post
Share on other sites
Guest

What I would consider important is what is the current repayment amount based on?

If it's the wonderful "discount" rate of 2.79% or whatever, and it's still 30% of your income, then what plan is there in place when you drop into an SVR likely to be a min of 5% and quite possibly (in 2-5 years time) 6-9%....

If you're confident you can dent the mortgage amount outstanding / go offset / save a significant amount, then maybe it's viable.

You can't (IMHO), in this climate, count on prices rising and "living of the equity". Those days seem to have gone.

Also, are you relatively safe in your job? Are you likely to get pay rises (faster than interest rates rise) in the next 15-20 years?

We had a big shock when our (relatively good joint income c. £80k with 20+ hours overtime per week) situation changed having one, then two, then three kids. We had a 4.85x joint income mortgage and the costs of kids and burden of earning (and stupid £2000/month childcare costs when the wife was at work) meant it's been Lidl and 100,000+ mile cars for the last 5 years.

I was forced to change jobs and am happy to say that it's taken 7 years of 100 hours a week to bring the mortgage down to manageable levels where I am more senior now and can afford to not do so much overtime (thus enjoying time with the wife and kids - at least for 30 mins in the morning and evening).

Salutory tale.

Repayment amount is a 10 yr fixed at 4%, so at least won't increase in first 10 years. I have worked out repayments from year 11 onwards based on 7% mortgage rate, but would be doable at a push at 10% rates.

Affordability is based on a basic salary with no overtime. Job is as safe as it can be... have been through 3 or 4 restructures and have always been told I was one of the best interviewees, so implies I am relatively safe.

The £150k mortgage would be just over 4 times my salary, or 3.75 joint.

I haven't had an above inflation pay rise for several years, but has anyone?

Oh and should add that we have two young kids (1 and 3), with no plans for more.

Edited by Guest

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   218 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.