What % of your income 'should' your mortgage be?

kat74

Hi,
I'm coming to the end of a 3yr fixed term at 6.24%. I'm not yet decided whether to go for another fixed term or to revert to the SVR and see how that goes. Whichever I decide, as I expect that my monthly payments will go down, so I plan keep my monthly payments the same and overpay to reduce the term.

I currently spend 27% of my monthly salary on my mortgage - is there a rule of thumb as to what one ought to spend? I have do have some CC debt (about £1.5k interest free and on schedule to be paid off in 3 months, so not a major concern as far as my mortgage goes).

I'm also thinking of moving to a bigger place in the next 12-18 months; I've got a rough idea of the mortgage amount I'd be eligible for but I'm more interested in how much per month it's wise to spend, rather than a multiple of my salary.
Can any one advise if there is a general rule?

Thanks

beecher2

Much depends on how much you earn. If you're bringing in £3000 a month, spending £1500 on a mortgage might be doable, but if you're earning less it probably won't be. I wouldn't be happy spending more than 1/4 of my wage on a mortgage but then I prefer to have more income to spend on other things.

phildo_2

The consensus is usually that somewhere around 25%-30% is reasonable but really I'd say there is no general rule as -

Family A on £4000 pcm take home with 50% mortgage commitment willl have £2000 left for food, bills, car, insurance etc
Family B on £800 pcm take home with 50% mortgage commitment willl have £400 left for food, bills, car, insurance etc

A would probably be fine, B would probably struggle. This is just an illustration to show that using %'s can cause problems...

The only real way to work out what is reasonable for YOU to spend each month on a mortgage is to look at your own outgoings and income and work out what you are comfortable with. Make sure that you include all costs (be prudent and overstate them a bit), add on enough for emergencies and savings etc..

suisidevw

My wife and I take home approx £2600 between us and our mortgage is £880. A pretty nice life is do-able with these figures.

dimbo61

You say you have a rough idea of how much your lender would lend you to buy a bigger place YES!
Put that figure into " whatsthecost" over say 25 years ( dont know your ages) at 5% ( most 5 year fixes about that rate) and see how much it works out each month.
Pay that amount off your mortgage each month for next 12/18 months and see if you manage ( EASY).
Lots of lenders now have online calculators to show how much they would lend you according to your income.

kat74

Ok, some fair points raised there!

My current mortgage was 2.8x my salary 7 years ago, which I'm aware is quite conservative, especially has my salary has gone up about 25% since then.

If I were to move house, doing a quick check online I could in theory get 4x my salary, which would be about 40% of my monthly income. This sounds a massive increase to me and I wouldn't be comfortable with that and I was wondering if this is the level that most people pay.
But see that it does depend on how much actual cash the remaining 60% is!

I think I know that I can afford to pay a bit more than I currently am - I just need someone to tell me that I ought to!
I suppose if I up my payments for now I can see how I cope I can always reduce them back to the correct level if needed.

Thanks for the input

kat74

Dimbo61 - we cross-posted - a good idea, thanks!

dimbo61

I am one of the old people keen to clear the mortgage asap.
After 5 years of paying over 50% of my take home pay on the mortgage I am used to it and find I still manage the odd holiday or two a year.
Use this site to save every penny I can on bills, shopping, insurance, credit cards ETC.
Some people always fly first class and stay at 5* hotels
Some fly ryan air/ easyjet and get good deals online YOUR CHOICE

sammyjammy

If you are thinknig of moving house in 12/18 months then think very carefully about a fix, you would need to ensure its portable and even if it its not a given that they would allow it at the time of asking.

dimbo61

Sorry did not put in my first post that you should go onto the SVR and overpay like you have a 5% fixed on the larger amount you think ! your lender would lend you.
This will
A reduce your current mortgage balance quicker ( paying less interest)
B give you a bigger deposit ( more equity in existing property)
C prove to lender that you can afford a bigger mortgage
D you may even get a better deal 75%/60% LTV