Cost of mortgage as a % of monthly take home

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MrMajic wrote: »

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

You have to be kidding surely, I'd say you would be ok if you were on say 10k per month, spare 4k, however if you're anywhere near the UK average of 25k p.a, it would be financial capitulation.

space_rider

My mortgage is just about 30% and that to me is more than enough.

JayZed

According to Woolwich Mortgage Affordability Research, as of June 2007 (can't find more recent figures but haven't looked very hard):

- The average monthly mortgage repayment across all age groups was 20.1% of take-home income.

- The average repayment for mortgage borrowers in their 20s (i.e. mostly FTBs) was 32.4% of take-home income.

- The average repayment for borrowers in their 20s in London was 40.5% of take-home income.

At the time, all of these figures were the highest they had ever been.

Link: http://www.insidemoneytalk.com/news/bal/bal124.html

neverdespairgirl

60% sounds far too high to me, unless you are on a vast income.

getmore4less

Using % of income is not a good way to do any financial planning

Affordability is what you need to work with.

This will vary person to person depending on income and spends.

There are two parts to affordability for any proposed debt.

Servicing the debt : Can you pay the interest from surplus income
Repaying the debt : Whats the plan to pay the money back

You need plans for both and because there is a variable priced asset involved you cannot depend on disposal to pay off the debt.

Since you cannot relly on the disposal and most people service debt from income the sensible measure for affordability is a repayment mortgage on a term that fits in with the income profile(retirement being the point for most people where it reduces).

This can be mofified to adjust for things like lump sums from pensions or an income profile that allows for capital repayments to be delayed but a good ballpark is the regular repayment mortgage.

A plan that stretches the income and is dependent on disposal to repay the debt has some significant risks.

The other problem with comitting all income in this way is you become dependent on those earning levels which in itself is a risk.

Also need to be considered as part of longer term planning that may put demands on current income like the kids uni fees and saving to replace earned income for retirement .

withchild

chez a bella,
any news on your situation as i am in the same position as you were, and had to move in with a friend, although i've recently had my baby and wondered how your process was going.