Cost of mortgage as a % of monthly take home

MrMajic

Hi all

We're looking at moving house to a bigger place, which would result in the interest only cost being up to 60% of our take home pay. Is this seen as too high? Is there a rule of thumb?

Thanks

beecher

I suppose it depends on how high your take home pay is and how much excess money you have at the moment. It seems an incredibly high amount to me, particularly if you're only covering the interest, particularly now with the economy being in recession.

opinions4u

If rates went up 5% could you pay?

If you can only repay the interest, how will you ever repay the capital?

Sounds like a bad call to me.

robin_banks

Me too, 40-50% of take home

MrMajic

opinions4u wrote: »

If rates went up 5% could you pay?

If you can only repay the interest, how will you ever repay the capital?

Sounds like a bad call to me.

Probably, but there wouldn't be a lot lef for the other day to day costs. I would look to fix for a few years with a view to paying off a chunk of the borrowing in a few years time. I'm comfortable with the basis od interest only mortgages.

opinions4u

With the greatest respect, if your mortgage rate is 6% and rose to 11% you could not afford the payments based on the 60% of net income figure in your post.

Net income of £12k = £1k a month. 60% (based on a 6% rate) = £600. If the rate was 11% you'd be paying £1,100 a month. Do the maths for your own incomes and proposed borrowings.

I've been around far too long - I remember paying 15.4% for my mortgage. It hurts, and if it over-extends you, you lose everything.

Albee

My mother always said that you should never pay more than 50% of your monthly salary on renting / mortgage - this simple rule has kept a roof over my head so far!

MrMajic

opinions4u wrote: »

With the greatest respect, if your mortgage rate is 6% and rose to 11% you could not afford the payments based on the 60% of net income figure in your post.

Net income of £12k = £1k a month. 60% (based on a 6% rate) = £600. If the rate was 11% you'd be paying £1,100 a month. Do the maths for your own incomes and proposed borrowings.

I've been around far too long - I remember paying 15.4% for my mortgage. It hurts, and if it over-extends you, you lose everything.

You're quite right, a 5% rise would result in the cost being around 114% of my income. I'll look to avoid a 5% rise overnight.

MrMajic

50% sounds reasonable. I just wondered what people considered to be a realistic figure.

On a personal level we have other income that will reduce the initial 60% figure.

Thanks all.

beecher

I think anything over 30% is unrealistic personally but then I only have one average income coming in and so don't have as much leaway as others. I'd also add that most people would be calculating the cost of actually repaying the mortgage, not just the cost of the interest.

sarah_elton

Depends largely on what your salary prospects are in the future. What is your likely career progression from here and what salary is achievable? If it's going to be 60% for the forseeable future then IMO that's too high.

My mortgage plus leasehold service charge was 44% of my take home when I first got it a few years ago, and that felt tight each month, although I was repaying some credit card debt from uni at the time.

Now, due to salary increases it's 25% which is lovely, and with OH moving in next month will be half that. Much happier now.

If you're in a career track where you should be earning more in the relatively short term (say three years) then it's not as bad as if you've reached about as high a salary as you're ever likely to earn (in real terms).