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BillyShears

How Much Can You Borrow?

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Just a small semantic point, but I notice that these mortgage affordability calculators always seem to say "how much can I borrow?" or similar. Surely a better approach would be to ask "How much should I borrow?". And surely the answers of these two questions would be different amounts?

Billy Shears

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Just a small semantic point, but I notice that these mortgage affordability calculators always seem to say "how much can I borrow?" or similar. Surely a better approach would be to ask "How much should I borrow?". And surely the answers of these two questions would be different amounts?

Billy Shears

3.5x annual salary, unless you are confident that your salary will grow rapidly in the future, i.e., recently graduated medic or lawyer.

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3.5x annual salary, unless you are confident that your salary will grow rapidly in the future, i.e., recently graduated medic or lawyer.

I wasn't looking for the actual figure, but was discussing the wording used by mortgage lenders. I suspect there are legal reasons for the use of the word "can" instead of "should". But I think it also says something about typical borrowers that I see very little discussion of the "should" rather than the "could" of lending.

Billy Shears

Edited by BillyShears

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I wasn't looking for the actual figure, but was discussing the wording used by mortgage lenders. I suspect there are legal reasons for the use of the word "can" instead of "should". But I think it also says something about typical borrowers that I see very little discussion of the "should" rather than the "could" of lending.

Billy Shears

I must interject, I have posted elsewhere that in a recent mortagage application Nationwide were prepared to offer us £309,000 under the affordability scheme, which I stated scared the bejesus out of me. We put in an application for £214,000 (3.5 X our combined income), which is about the level we were comfortable with, factoring in a 3% interest rate rise if it all went tits up. We have no debt and have savings but it still makes me quite annoyed that a bank could lend so much money, when it comes to an interest rate rise people would / will be screwed borrowing at that level.

There is absolutely no shame in insolvency anymore in fact after Uni it seemed to be the "get out of paying your Student Debt" clause. (I'm sure quite a large percentage of Student Loans never get repaid, can't remember exact figure, only a matter of time before the same stats apprear for unsecured loans).

The onus of irresponsible lending most certainly lays at the door of banks and the goverment. Equally the blame lays at the door of people willing to hang themsleves financially by burying their heads in the sand. (A good friend is about to buy a house with the boyfriend who has only now agreed to do it after 8 years, they are borrowing quite a lot and when I asked her could thay afford it if interet rates went up she just completely sidelined the question and went on to another subject!!!! :o Additionally he owes £10,000 to the bank of Mum & Dad and she £8,000 to credit cards).

How ever you are right not much gets dicussed as to the rights and wrongs of what is being lent as oppose to what should be lent.

Edited by Jitters

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Student loans are not forgiven in a bankruptcy.

I believe the technique for this is to get unsecured loans and credit cards, pay off the student loan, then declare bankrupcy.

But I missed the boat on that one. :rolleyes:

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Student loans are not forgiven in a bankruptcy.

I believe the technique for this is to get unsecured loans and credit cards, pay off the student loan, then declare bankrupcy.

But I missed the boat on that one. :rolleyes:

Thankfully so did I, hence not knowing the ropes around it!!

I was stoopid and paid it off early - imagine all that interest I could have made by paying it off slowly :lol:

Edited by Jitters

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Student loans are not forgiven in a bankruptcy.

I believe the technique for this is to get unsecured loans and credit cards, pay off the student loan, then declare bankrupcy.

But I missed the boat on that one. :rolleyes:

Aahh. Thats how they are doing it. I thought deducting it by the Inland Revenue with PAYE had put a stop to it.

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Aahh. Thats how they are doing it. I thought deducting it by the Inland Revenue with PAYE had put a stop to it.

It's been a few years since I went to Uni - when did they start using PAYE, was DD in my day.

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I wasn't looking for the actual figure, but was discussing the wording used by mortgage lenders. I suspect there are legal reasons for the use of the word "can" instead of "should". But I think it also says something about typical borrowers that I see very little discussion of the "should" rather than the "could" of lending.

Billy Shears

I guess 'should' would imply they had given advice on sensible borrowing and therefore an assessment of risk for that individual. 'Can' implies this is how much you can have from the lender - but how much is still up to you.

Like you say, probably legal reasons.

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hah! Filled out the nationwide clacurlator for a combined salary of 67k

You requested a loan of £300,000 over a period of 25 years 0 months.

Nationwide could lend you, subject to satisfactory income evidence, credit scoring and suitable security up to a maximum of £284,750. The minimum period you could afford to repay that amount over would be 17 years 9 months.

Apparently £1973.35 a month is affordable. :o

Mind you £1112.08 (4.68% variable IO) is only a bit more than my rent... maybe I should go wild!

Edited by RichB

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Just a small semantic point, but I notice that these mortgage affordability calculators always seem to say "how much can I borrow?" or similar. Surely a better approach would be to ask "How much should I borrow?". And surely the answers of these two questions would be different amounts?

Billy Shears

Indeed. I often discuss just this point with friends. In fact, I branch the discussion out further, and discuss how people often talk about "how much can you afford?" when deciding how much to pay for a house, rather than "how much is it worth?". I point out to them that they wouldn't go to the car showroom or the supermarket and ask "how much can we afford to spend in here" as a guide to how much stuff to buy.

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Never understood this income multiple stuff. I would have thought it more sensible to subtract all your non-housing expenses from your income & see what's left. What you do with it is, of course, up to you ...

Hmmm, isn't that the affordability model?? :)

Edited by Jitters

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Just put our figures in the Nationwide calculator, they will lend us 250,000 quid, a quarter of a million pounds!.

Does anyone know of a site I can google, that has info on countries that DON'T have an extradition treaty with the UK :D

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Just put our figures in the Nationwide calculator, they will lend us 250,000 quid, a quarter of a million pounds!.

Does anyone know of a site I can google, that has info on countries that DON'T have an extradition treaty with the UK :D

Have you seen the television show "Lost"? You should be safe from the moneylenders on that island.

Billy Shears

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I guess 'should' would imply they had given advice on sensible borrowing and therefore an assessment of risk for that individual. 'Can' implies this is how much you can have from the lender - but how much is still up to you.

Like you say, probably legal reasons.

Bingo, particularly since they are FSA regulated, they are desperate not to give financial advice unless they really intend to. If it said "should" and some muppet got into trouble, then that muppet could try to sue them asserting that they had 'advised him' an amount was appropriate for him to borrow.

Edited by Rachman

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Billy. Do I go there and worry about the "others", or do I stay and try to pay the £1875 repayments. Seems like I will be in the cack either way :P

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I must interject, I have posted elsewhere that in a recent mortagage application Nationwide were prepared to offer us £309,000 under the affordability scheme, which I stated scared the bejesus out of me. We put in an application for £214,000 (3.5 X our combined income), which is about the level we were comfortable with, factoring in a 3% interest rate rise if it all went tits up. We have no debt and have savings but it still makes me quite annoyed that a bank could lend so much money, when it comes to an interest rate rise people would / will be screwed borrowing at that level.

Unless your partner is same sex, you are overborrowed. 3.5 X combined is far to much!!.

The figure is, and always has been 3.5 X 1, that is 3.5 times the mans salary, 1 times the wife or spouse.

The resoning behind this is pretty obvious, so I wont bother to explain the birds and bee's to you all.

However due to low interest rates, the ratio's can obviously be much much higher.

But remember, rates can go up, and your house is at risk if you do not keep up repayments.

Repossesion orders are granted after three months of arrears, if your wife can fall pregnant, have the child, and get that child through school and out the other end in three months, then for sure you need to take a closer look at your wife as I suspect she is most likely a Rodent, and not the commonal garden wife we are used to seeing.

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Unless your partner is same sex, you are overborrowed. 3.5 X combined is far to much!!.

The figure is, and always has been 3.5 X 1, that is 3.5 times the mans salary, 1 times the wife or spouse.

The resoning behind this is pretty obvious, so I wont bother to explain the birds and bee's to you all.

However due to low interest rates, the ratio's can obviously be much much higher.

But remember, rates can go up, and your house is at risk if you do not keep up repayments.

Repossesion orders are granted after three months of arrears, if your wife can fall pregnant, have the child, and get that child through school and out the other end in three months, then for sure you need to take a closer look at your wife as I suspect she is most likely a Rodent, and not the commonal garden wife we are used to seeing.

Other variables, said wife can juggle kids and work, said wife can work from home, said wife may not want kids, said wife may earn a lot more than him etc. Then he could have salary increase or they may be sensible enough to take the smaller mortgage amount and massively overpay it so that in maybe 5 years if they want kids they have paid that £700 a month extra off and they owe about £35K less on the mortgage (having paid off about £20K anyway) and inflationary wages have made him about 20% richer in today's money (as the mortgage is (assuming fixed interest rates), which meand that mortgage of £1,100 a month could be down at about £700 , which is doable. You can't just assume anything, everyone is different etc.

E.g I pay 60% of our joint net income into the mortgage account every month - does that mean I am skint, or does it mean I am stupid to borrow such a large amount or am I overpaying like anything ?

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Other variables, said wife can juggle kids and work, said wife can work from home, said wife may not want kids, said wife may earn a lot more than him etc. Then he could have salary increase or they may be sensible enough to take the smaller mortgage amount and massively overpay it so that in maybe 5 years if they want kids they have paid that £700 a month extra off and they owe about £35K less on the mortgage (having paid off about £20K anyway) and inflationary wages have made him about 20% richer in today's money (as the mortgage is (assuming fixed interest rates), which meand that mortgage of £1,100 a month could be down at about £700 , which is doable. You can't just assume anything, everyone is different etc.

E.g I pay 60% of our joint net income into the mortgage account every month - does that mean I am skint, or does it mean I am stupid to borrow such a large amount or am I overpaying like anything ?

You are overpaying like anything, doh. As a 40% rate taxpayer, paying down your mortgage is a no brainer investment, and yes, if you have spare cash, good idea. (well, hope you have a decent pension plan as well to take advantage of that tax break)

3.5 is one of those rules of thumb that work. If you crunch through the maths, it gives a % of post tax income to housing in the 25-33% level. 3.5 is too rich for me though, when I buy it will be on 10-15 year repayment schedule (as it sounds you are on)

Reminds me of a valuation exercise on a company I saw once. The grey hair just said "p/e of ten". The modelling geeks went and ran huge spreadsheet and came up with 9.78.

When people break rules of thumb (c.f. dot com bubble) it is not a good sign.

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3.5 is too rich for me though, when I buy it will be on 10-15 year repayment schedule (as it sounds you are on)

Spot on. Budgeted at 10 years (assuming current incomes and no rises). Reality is likely to be about 7.8 years. It's another reason I am less bothered about a drop in house prices than a loss of job.

I had ignored the pension money (if I don't see it, it's not mine :) ) - I see the problem with those being that if it's free money (i.e. from the employer) then it's fine, but because they are messing with the earliest date you can take the pension (now 55, likely to be 60 plus in future) - that's a lot of years I don't want to be working where I can't get my pension. Hence I thought stuff it on AVCs - I shouid rather pay the tax then have access to the wedge in my 40's.

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An affordability type model is all that can be used now. Too many households don't fit the assumption that wifey is a "pin money earning child rearing stay at home"

One couples affordable level will be significantly different from another for many reasons. Competition between lenders will always mean people are able to borrow far too mch if they are stupid.

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Unless your partner is same sex, you are overborrowed. 3.5 X combined is far to much!!.

The figure is, and always has been 3.5 X 1, that is 3.5 times the mans salary, 1 times the wife or spouse.

The resoning behind this is pretty obvious, so I wont bother to explain the birds and bee's to you all.

However due to low interest rates, the ratio's can obviously be much much higher.

But remember, rates can go up, and your house is at risk if you do not keep up repayments.

Repossesion orders are granted after three months of arrears, if your wife can fall pregnant, have the child, and get that child through school and out the other end in three months, then for sure you need to take a closer look at your wife as I suspect she is most likely a Rodent, and not the commonal garden wife we are used to seeing.

I know the figure for couples is usually 2.5 x combined income or 2.75 if you are lucky. I had a scatty moment in my other post, the level I felt comfortable with was 3 X our combined income (just recalculated), allowing for rises in interest rates, but I could be wrong.

P.S. I am the misses and I'm the highest earner (by £15,000), so it might not be me giving up the day job! How ever I am equally aware that we need to be able to survive on one income, that's why we didn't buy the aforementioned house when the vendor refused to drop the price, as it just wasn't worth it. I am now going to wait until value for money reappers.

Edited by Jitters

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Isn't using "affordability" going to leave the banks open to mis-selling claims once people start defaulting? the word itself surely assumes giving financial advice?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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