Mortgage size v salary

[Guest]

My rule of thumb with a mortgage (if I ever buy somewhere) is repayments shouldn't exceed 30% of income. My father-in-law said that rule is for people with limited aspirations. He also said people on high salaries can afford higher reps as % of income. I agree with the latter to some extent, but I'm slightly miffed that my aspirations are "low".

Any thoughts?

Just to add he lives in a modest 3 bed semi and certainly has never been one for big debt or huge houses. I think his new(ish) partner who loves spending money has changed his outlook. She did have a rich husband (and son who paid off her MTG!)

[scottbeard]

4 minutes ago, Grab_Some_Popcorn said:

My rule of thumb with a mortgage (if I ever buy somewhere) is repayments shouldn't exceed 30% of income. My father-in-law said that rule is for people with limited aspirations. He also said people on high salaries can afford higher reps as % of income. I agree with the latter to some extent, but I'm slightly miffed that my aspirations are "low".

Any thoughts?

30-35% is pretty sensible.  You could push it to higher multiples with a higher salary on the logic of having more disposable income, but that assumes

- interest rates never rise

- you never lose your job and have to get a lower paid one

I'm not quite sure how being prudent equates to having "limited aspirations".  His "go big or go home" strategy could end you up with a bigger house...or could end up with you out on the street if rates rise and you had to change down your job.

[Houdini]

The old phrase of exceeding 30% of income comes from an era when inflation eat away the debt and wages increased by at least inflation if not more than inflation - which is probably a short period from 1978 through to 1985 if you ignore the companies that closed then. In those days a mortgage taking 35% of salary would within a couple of years be less than 30%.

In an era where your next job is likely to pay little more or less than the current one, pay rises above inflation are virtually unheard of and interest rates only have one long term direction borrowing more than 30% at the moment is utterly mad and is simply a risk I wouldn't take.

[spyguy]

12 minutes ago, Grab_Some_Popcorn said:

My rule of thumb with a mortgage (if I ever buy somewhere) is repayments shouldn't exceed 30% of income. My father-in-law said that rule is for people with limited aspirations. He also said people on high salaries can afford higher reps as % of income. I agree with the latter to some extent, but I'm slightly miffed that my aspirations are "low".

Any thoughts?

Just to add he lives in a modest 3 bed semi and certainly has never been one for big debt or huge houses. I think his new(ish) partner who loves spending money has changed his outlook. She did have a rich husband (and son who paid off her MTG!)

Its not just your view, its MMRs.

 

[Guest]

This thread is cheering me up a little. My rent is roughly 15 to 17% of my disposable income. OK, I am p***ed with the housing market, but at least right now I have a life.

[GreenDevil]

6 minutes ago, inbruges said:

This thread is cheering me up a little. My rent is roughly 15 to 17% of my disposable income. OK, I am p***ed with the housing market, but at least right now I have a life.

Wow. That's unusual most of gen rent are paying in the 50-60% ballpark after taxes.

[BorrowToLeech]

Aspirational? If you aspire to paying 75% of your income on a house, just do that.

Do it right now.

Aspiration achieved.  Achievement unlocked. 

I aspire to having a big dump.  For minutes now it’s been my dream.

Any advice?

[Dorkins]

My father was on a big wage in the late 80s and took out a jumbo mortgage to buy a house. It worked out fine until the early 90s recession in which his income dropped significantly and so did the value of the house but of course the mortgage didn't disappear. After they failed to make mortgage payments the house was repo'd and my parents went back to being de facto FTBs starting again in their early 40s with nothing much to show for two decades of wage labour. They came from poor-ish families so no inheritance/Bank of Mum and Dad available. We moved into my widower grandfather's house for a few months, then a private rental, then a couple of years later they bought again at the amazing bargain prices of the mid-90s. (Boomers have all the luck.)

A high wage and a high house price can both disappear in a matter of months. It's worth considering this scenario when working out how much debt to take on.

[Social Justice League]

Why is even 30% of income sensible?

Can someone who takes on a 25 year mortgage guarantee that they will keep a job for those 25 years and not get sick?

No they can't. 

Does the bank even ask "How will you pay this property loan if you loss your job or can't work due to illness over the next 25/30 years"?

The whole system of 'borrowing money to appear wealthy' is utter madness imo.

[spyguy]

6 minutes ago, Dorkins said:

My father was on a big wage in the late 80s and took out a jumbo mortgage to buy a house. It worked out fine until the early 90s recession in which his income dropped significantly and so did the value of the house but of course the mortgage didn't disappear. After they failed to make mortgage payments the house was repo'd and my parents went back to being de facto FTBs starting again in their early 40s with nothing much to show for two decades of wage labour. They came from poor-ish families so no inheritance/Bank of Mum and Dad available. We moved into my widower grandfather's house for a few months, then a private rental, then a couple of years later they bought again at the amazing bargain prices of the mid-90s. (Boomers have all the luck.)

A high wage and a high house price can both disappear in a matter of months. It's worth considering this scenario when working out how much debt to take on.

Outside of the  public sector, the more you earn, the more risk you have of your income going down.

If I was a bank manager, Id have a good grasp of what the local median wage was and get a much greater deposit for people borrowing 2 x median wage.

years ago - and I mean years ago - 50 odd - my Dad was refused a mortgage on the grounds that the local bank manager knew the company he worked for laid off a lot of people in the winter season.

[Riedquat]

5 minutes ago, Social Justice League said:

Why is even 30% of income sensible?

Can someone who takes on a 25 year mortgage guarantee that they will keep a job for those 25 years and not get sick?

No they can't. 

Does the bank even ask "How will you pay this property loan if you loss your job or can't work due to illness over the next 25/30 years"?

The whole system of 'borrowing money to appear wealthy' is utter madness imo.

Borrowing money to appear wealthy is utter madness, but is borrowing money to have a place to live? Even if house prices were sensible a house would still be an expensive thing that would take a long time to save up for (in the meantime handing even more to the landlords). It's not risk-free - the situation you describe might happen - but going through life expecting certainty before you do anything won't get you anywhere, the world simply isn't that predictable (thank heavens).

[iamnumerate]

2 hours ago, Grab_Some_Popcorn said:

My rule of thumb with a mortgage (if I ever buy somewhere) is repayments shouldn't exceed 30% of income. My father-in-law said that rule is for people with limited aspirations. He also said people on high salaries can afford higher reps as % of income. I agree with the latter to some extent, but I'm slightly miffed that my aspirations are "low".

Any thoughts?

Just to add he lives in a modest 3 bed semi and certainly has never been one for big debt or huge houses. I think his new(ish) partner who loves spending money has changed his outlook. She did have a rich husband (and son who paid off her MTG!)

I think you are right although it would depend on your future earning potential and the scope for interest rates to go up or down.  For example if you bought at when interest rates are high you might want to assume that they will go down soon.

[spyguy]

3 minutes ago, iamnumerate said:

I think you are right although it would depend on your future earning potential and the scope for interest rates to go up or down.  For example if you bought at when interest rates are high you might want to assume that they will go down soon.

UK earnings peak at ~31.

Sure, theres a few people who go on to eanr more + more but for Joe UK its 31.

[iamnumerate]

Just now, spyguy said:

UK earnings peak at ~31.

Sure, theres a few people who go on to eanr more + more but for Joe UK its 31.

True I meant if you are a junior doctor or something like that.  The OP should I hope know what is possible for him.

[Dorkins]

45 minutes ago, spyguy said:

Outside of the  public sector, the more you earn, the more risk you have of your income going down.

This is pretty much my rule of thumb. If you're earning well in the private sector, make hay while the sun shines and don't assume it's going to last.

[spyguy]

Just now, iamnumerate said:

True I meant if you are a junior doctor or something like that.  The OP should I hope know what is possible for him.

Part of the mess the uK in is assuming everyone is above average.

I remember mortgage advisors lying about peoples earnings then telling them that theyd soon be earning 100% more.

This is just not true for 80% of the UK population.

 

[CentrinoDuo]

2 hours ago, Grab_Some_Popcorn said:

My rule of thumb with a mortgage (if I ever buy somewhere) is repayments shouldn't exceed 30% of income. 

 

 

Depends on your income and outgoing. If you're taking home £3000/month, 30% of that may even be a stretch. If you're taking home £15,000/month you can push a lot further than 30% if you don't have any other obligations.

It's what's left for disposable income and saving for rainy days that should determine the maximum mortgage repayment rather than simple x% of your income.

 

[iamnumerate]

3 minutes ago, spyguy said:

Part of the mess the uK in is assuming everyone is above average.

I remember mortgage advisors lying about peoples earnings then telling them that theyd soon be earning 100% more.

This is just not true for 80% of the UK population.

 

Very true.

[MattW]

51 minutes ago, spyguy said:

years ago - and I mean years ago - 50 odd - my Dad was refused a mortgage on the grounds that the local bank manager knew the company he worked for laid off a lot of people in the winter season.

In the mid 1960s my parents were refused a mortgage. They would only lend 2 x my dad's salary as he was a self employed Brickie. My mum worked full time but her income wasn't counted because it was assumed (correctly) that she would become pregnant and would have to leave work. 

[CanAffordWontPay]

30% of our current joint salaries would buy is a half decent place in Hampshire, however, I'm personally not comfortable with it. Either borrowing that kind of money or servicing it. Each to their own though. Wouldn't take much of a circumstance change for the pressure to pile on.

[iamnumerate]

3 minutes ago, CanAffordWontPay said:

30% of our current joint salaries would buy is a half decent place in Hampshire, however, I'm personally not comfortable with it. Either borrowing that kind of money or servicing it. Each to their own though. Wouldn't take much of a circumstance change for the pressure to pile on.

How does it compare financially to renting?  For me that is the real way to compare if an expensive place is worth it.  (I am not saying that you should buy or not, if I knew I would be rich).

[spyguy]

33 minutes ago, MattW said:

In the mid 1960s my parents were refused a mortgage. They would only lend 2 x my dad's salary as he was a self employed Brickie. My mum worked full time but her income wasn't counted because it was assumed (correctly) that she would become pregnant and would have to leave work. 

There were a few years, after 2008 and before MMR, where a couple could bankrupt themselves by borrowing stupid multiple, pre-Kids.

I know 4 couples who did.

2 have gone bust.

1 has divorced.

The other is putting off having kids.

Insane. No way to live.

[Sancho Panza]

1 hour ago, Dorkins said:

My father was on a big wage in the late 80s and took out a jumbo mortgage to buy a house. It worked out fine until the early 90s recession in which his income dropped significantly and so did the value of the house but of course the mortgage didn't disappear. After they failed to make mortgage payments the house was repo'd and my parents went back to being de facto FTBs starting again in their early 40s with nothing much to show for two decades of wage labour. They came from poor-ish families so no inheritance/Bank of Mum and Dad available. We moved into my widower grandfather's house for a few months, then a private rental, then a couple of years later they bought again at the amazing bargain prices of the mid-90s. (Boomers have all the luck.)

A high wage and a high house price can both disappear in a matter of months. It's worth considering this scenario when working out how much debt to take on.

Sums up the risks beautifully.

Worth noting the experience of a good few middle managers who get laid off in their 50's and struggle to get rehired at similar salary levels ever again.

 

[CanAffordWontPay]

3 minutes ago, iamnumerate said:

How does it compare financially to renting?  For me that is the real way to compare if an expensive place is worth it.  (I am not saying that you should buy or not, if I knew I would be rich).

Would be looking at circa 100% increase in mortgage payments versus rent, however, that's buying a larger place than what we currently rent. If we were staying in the area long term we would probably capitulate and buy. When, what and where though is a tough one. Only decent houses really for sale are 4 bed detached. Then I don't want to stretch that far, nor have to deal with the extra costs and maintenance that come with a property that big. Nonetheless, we've decided we're moving within the next few years. Somewhere cheaper in the UK (maybe abroad) and will be buying cash/fixed for the term and we're going to work less. I have no desire to slog it out anymore. 

[Hullabaloo82]

Depends.

My wife and I have just upsized to a bigger place. Mortgage is still less than 20% of joint take home pay. On the face of it, it looked like a great move; much bigger place for not much more borrowing. Not where we wanted to live but the area gas decent schools and ok amenities.

Key difference is I am now ten miles out of town but, thanks to the vagaries of our wonderful rail service, the train ticket to my office (an hour or so away) is nearly double or a 20 - 40 mile drive if I work at a site closer to home. 

We've had to take on a second car to make the childcare/commute situation work. Utilities/council tax also bigger in a larger house meaning we've cut back on what I call "non current" savings (ie gets invested as opposed to sits in an account for quick access for holidays, christmas or if the car is on the blink) and overall have less disposable income for fun/treats at the moment. ****** knows what we would do if we had to pay childcare costs (if you ate one of these people that manages a mortgage and childcare, I salute you).

The trade off is we get much more space (which is wonderful to be honest) and actually being out of town means the gym has become my hobby as opposed to sloping off to the pub a couple of nights a week so feeling fitter. I guess it's a similar choice to what a lot of people make; basically we've tightened our belts a little now but expect in a while that we'll come out on top; I'm hoping for a promotion later this year and in a couple of years my wife should be able to go back full time at work so our disposable will hopefully creep back up again. 

Point is you need to consider other factors. We pay far less than your 30% maker but spend about 60% of our monthly mortgage payment again on travel plus a fair whack again on food for a family of 3 and looking after our 2 year old. If you live a 5 minute walk from work and have no kids is a completely different dynamic. 

This whole exercise (uprising from what was a lovely, very cheap to run house but ultimately just too small to a "family" home) has taught me that it's very easy to underestimate your living costs though. I think a lot of families think they're far better off than they are hence the massive debt problems you see of people like that copper who murdered his wife over it. Trouble is the expectation is that, as a professional guy with a family, you should be able to live like your family did when growing up; for middle class people that means holidays, nice kitchen, nice car etc. Sadly the professional salary plus wife doing 3 days a week combo just does not cover it these days.