What do you class as overstretching on mortgage's?

lightspeed

Hi all,

Recently there have been many posters that keep harping on about how when IR's increase those with huge mortgage's will suffer and how people "shouldnt" move away from the standard income multiples.

I agree with the former but have difficulty understanding how the latter is posssible in todays market:

My questions are:

1) What do you class as overstretching yourself?

Does this mean multiples of 5/6/7 etc... of joint incomes???

2) How can FTB's purchase property without moving away from the standard income multiples?

To me, 3.5 x the main salary and 1 x the second doesnt equate to much at all considering the average house price is above the 150K mark.

e.g.

applicant 1 = 20K p/a

applicant 2 = 15k p/a

max lend = 85K mortgage. With a decent deposit this couple could probably stretch to a property worth 95 - 105K (not too bad i suppose, but in some areas this wont get you much).

The new affordability mortgages would allow this same couple to lend approx 123K (now with their deposit,they could stretch to 135 - 140K). This equates to approx 3.5 x their joint income. Therefore, at at what point are they classed as "overstretching"???

Is 4 x joint income too much or are we talking 5/6/7 etc... joint incomes?

Any opinions would be appreciated. Thanks in advance.

Xbigman

Overstretching is not that easy to quantify. I took out a 3.25 multiplier mortgage four years ago as a single man and I've made overpayments and put money in savings. This is because I live very cheaply. On my current income I would quite happily take a 6 times income mortgage because I personally could pay for it. I have a brother who has just taken out a mortgage at 4 times joint which he will struggle to pay because he and his wife like to socialise, drive a nice car, holiday in Thailand, etc.

As with all personal finance you should first prepare a budget and work out your spare income. Unlike the debt free wannabe type budgets you can put sky TV, holidays and socialising on there as much or as little as you want to be comfortable. Then you know how much you can afford to spend on a mortgage. This is what the affordability mortgages are supposed to look at, but they don't. Lenders are just trying to justify lending out more money.
Work out what you can afford and then get a mortgage that size would be my advice.
Regards



X

MortgageMamma

I don't know about the other advisors on the board, but I'm uncomfortable with 4.5 x single or 4 times joint. i just think the mortgage payments compared to net earnings are a bit too much for people to cope with. Thats why I prefer lenders who assess off affordability. For people who are prepared to make sacrifices for the sake of a "better" property than thats their choice, personally I think it is ludicrous, why eat beans on toast for the next five years just to afford your mortgage payments?

silvercar

I think it depends on salaries, with a high disposable income you can afford greater multiples.