Mortgage Payment to Salary Ratio

sfielder78

Hi,

I am looking to buy my first home. I would like to know if there is a common sense estimate of the ratio of mortgage payment to either gross or net salary. I'm sure I've heard the estimate of 1/3 take home pay but can't find anything definitive online. My personal circumstances are good in the sense that I don't have any other debt but I don't want to over commit myself.

Thanks
Simon

lvm

My current mortgage is 14% of net salary (£190 interest only with £1350 take home pay). Repayment mortgage (£378) would be 28%.

I'm sure I've heard some people counting in C/Tax, bills etc in with the % but can't remember what the exact number was...

ovoreo

My mortgage and all bills (inc groceries) are 42% of my monthly outgoings, the rest is technically disposible. I'd recommend you do some research into what your outgoings will be for your new house, then you can work out how much you can afford.

My bills include: Mortgage payment £500, landline/internet £30, mobile phone £10, council tax £84, tv licence £12, energy £50 (gas & elec), water £15, life assurance £8, food £150, home insurance £10. You may have other things like sky, car insurance, etc. What I pay isn't necessarily what you will pay but it was just to give you an idea.

I give myself £250 to spend, this includes going out, cinema, presents and any other general spends. It's nice to have a buffer, ie all your mortgage, bills and general spends plus a bit extra you can save for a rainy day, etc.

F_T_Buyer

My mortgage is just under 1/3rd of my take home basic. However this is based on 4.99% APR fixed. I still manage to save quite a bit per month too..

ukcarper

It’s a bit crude.

For example if you earn £37.5k a year and get a 4x salary mortgage £150k at 5% you will have just under 2 thirds of your pay left after mortgage about £1400.

If you earn £20k and borrow £80k you will have a slightly bigger percentage left but it’s only £837.

alezzandro

ukcarper wrote: »

It’s a bit crude.

For example if you earn £37.5k a year and get a 4x salary mortgage £150k at 5% you will have just under 2 thirds of your pay left after mortgage about £1400.

If you earn £20k and borrow £80k you will have a slightly bigger percentage left but it’s only £837.

I agree. It's not the percentage that matters, but what is left. We can discuss what is better between 1/3 and 1/2 and how to calculate it, but you should really ask yourself two questions:
- how much money do I need to live the life I want to live?
- in this calculation, have I left enough room for contingencies?

Regarding the second question, what happens if some months/years down the line your car breaks, your house need repair, etc. Will you have the money?

alezzandro

or you could do one of those mortgages which allow you to repay a higher rate with no additional fees. In this case, you could take a longer mortgage, which has lower rates and higher total interest. Then, on a monthly basis, you can pay a monthly fee that is higher than nominal, so that the interests reduce.

If at some point you find yourself in a difficult situation, you stick to the nominal fee, that being lower, should create less problems.

does it make sense?

Jenniefour

Simon, what you've heard of the rule of the three's - take home pay divided into three - one part rent/mortgage, one part living expenses, and one part for the future - savings, pension pot. Anything over a third of take home pay on mortage was considered unwise.

sfielder78

Many thanks - a lot of sensible answers. It was suggested by my mortgage provider - Nationwide, that I could take a mortgage for 30 years and overpay to 25 each month leaving the flexibility for a lower payment if needed. This seems the sensible way forward.
Simon

mrstinchcombe

My repayment mortgage is 45% of my take home pay (670/1500). I struggle some months if im honest.

ovoreo

I'm with Nationwide and I can overpay up to £500 a month. I'm overpaying every month no matter how small but after purchasing the house I'm trying to rebuild some savings for those rainy days too.