Are the mortgage lenders being irresponsible?

bubblybee

Hi all,

I'm not sure if this has been discussed here recently so apologies - please direct me to the thread.

We are FTB and have a joint income of £42K a year (gross). We have just received a mortgage in principle for 4.5 times our salary £189K. I'm not sure what the monthly payments would be on this but it would be well over £1000. We are currently paying £600 rent and £500 into deposit savings. We really don't have any money leftover at the end of the month, have put everything on hold, haven't had a holiday etc. What I don't understand is, and perhaps I'm missing something, but this seems unaffordable and not something we could long term do - not with saving to have children etc. Are mortgage companies still lending too much?

Now our IFA clearly says he doesn't recommend us getting this level of mortgage and in any case we were thinking of £150-£160 with a 10% deposit. He says that this amount simply reflects our good credit score.

What does everyone think? are mortgage companies still offering to lend too much?

PasturesNew

If you are planning on having children, then it's not really sustainable.

It was always the thing that when you got a mortgage, you didn't really go out for 3 years and anything you had was begged/borrowed/stolen. You sat on orange crates until somebody was turfing out a sofa.

And that was at 2.5x joint.

If you're planning on having babies then maybe the mortgage illustration you filled out didn't reflect this.

chucky

by not knowing your spending and other bits and pieces it's very difficult to say what's best for you - only you can do that.

4.5 times your income isn't the worst in the world if you have potential to make overpayments and your salary will increase over time to increase your disposable income. if you don't, it may not be time to buy until you have a larger deposit.

to be fair - i wouldn't be asking for advice on this part of the forum but in answer to your question. the banks/lenders are not being reckless; the final decision is yours.

Thrugelmir

You have a mortgage in principle for £189k. But you haven't said what deposit you have available. As depending on the mortgage product you choose you will be restricted by LTV.

If you can only afford a 10% deposit. As you say. Then you are actually capped at nearer £135k. Thats £54k less, a considerable difference.

We all dream of buying a palace. Buy what you can realistically afford. The palace can be bought at a later date.

System

I think the responsibilty lies with the person taking the loan

HAMISH_MCTAVISH

PasturesNew wrote: »

If you are planning on having children, then it's not really sustainable.

Depends on whether or not the salary of the staying at work partner will increase before having kids, how long the mother takes in maternity leave, how much they save before hand, etc etc etc.

It could be perfectly sustainable, depends on cirsumstances.

It was always the thing that when you got a mortgage, you didn't really go out for 3 years and anything you had was begged/borrowed/stolen. You sat on orange crates until somebody was turfing out a sofa.

Absolutely true.

And something I note people don't have to do very much today, due to the percentage of income required to service the mortgage being lower, even with higher prices.

And that was at 2.5x joint.

2.5 times joint, but at 10% to 15% base rates, plus bank margin.

Whereas today, in a different world financially, people pay far less.

4.5 times joint at 5% to 7% is still a lower payment as a percentage of income than 2.5 times joint at 10% to 15%.

Which is why affordability today is far better than both the long term average and the situation of 2 decades ago when many of us bought the first time.

wageslave

Joeskeppi wrote: »

I think the responsibilty lies with the person taking the loan

It lies with the company that is supplying the loan too.

If I was a shareholder in the bank that has offered the OP 4.5 times their salary (and as a tax payer there is a reasonable chance that I am) and the OP takes the full amount and defaults. I'd be seriously pi ssed off and wants answers.

A financial institution is no different from any other business. It should only extend credit where there are as certain as they can be that the debt will be repaid.

If we, as a nation, have to bail the banks out again it wont only be Fred Goodwin who is run out of the country on a rail.

LydiaJ

PasturesNew wrote: »

It was always the thing that when you got a mortgage, you didn't really go out for 3 years and anything you had was begged/borrowed/stolen. You sat on orange crates until somebody was turfing out a sofa.

True. Many people (although I'm not one of them) do expect to be able to "do the place up" as soon as they move in rather than gradually.

But that's not the only thing that's changed. The "3 years of orange crates" way of doing things was in an environment of high inflation, wasn't it? So after 3 years or so, the mortgage payments (which would have stayed the same) would become much more affordable compared with your income (which would have gone up). In a low inflation environment, it takes a lot longer before the payments start to feel cheaper.

For those who like graphs, there's one here. It shows two situations of a 20 year mortgage that starts by being a mortgage burden of 25% of income, and demonstrates how the mortgage burden falls over the life of the mortgage for 2% inflation and for 8% inflation. If you can replace your orange crates when the mortgage burden falls to 20% of income, then at 8% inflation you can buy chairs after 4 years but at 2% inflation you can't buy chairs until 12 years (assuming that wage inflation and chair inflation are the same figure).

In answer to your question, OP, I investigated mortgages in principle last summer and was rather shocked at how large a monthly payment some banks seemed to think it would be reasonable for me to take on.

morag1202

By paying £600pcm rent and £500pcm into savings you have clearly demonstrated your ability to afford a mortgage of £1100pcm. So no, the offer in principle you got is not unreasonable and in your case the lender is not being irresponsible.

the_ash_and_the_oak

atm hes committed to the 600 and the 500 is kind of like a flexible overpayment

if he borrowed that much he would be committed to the 1100 imo

mbga9pgf

If you are struggling now, how will you cope with VAT at 20%, income tax hiked and even more in the way of NI contributions, together with potentially no payrise.

IF you are struggling now, forget it and carry on saving. Owning a home costs more than just the mortgage, albeit the major cost.

Frustrating I know, but join the club.