What is a "sensible" monthly mortgage % of income?

Yakubu22

I know this is a broad question, as people have different levels of comfort in terms of their monthly mortgage payment as % of income.

However I'm interested in what opinions are regarding a "sensible" % (not including bills)?

I've read some suggest 30% of the household 'after tax' income.

cheers.

jhxmt

Are you just after thoughts on mortgage, or rental as well?

I'm renting at the moment, and my rent is approximately 30% of my after-tax income. This doesn't cover my share of the council tax or any other bills - just pure rent. That's sensible for me - in fact, I consider myself quite lucky it's that low, as I'm in central London. I'm fortunate in my living situation that I know my landlord personally from years back, so he's not trying to gouge me and I'm not trying to cut back unreasonably.

Edit: that is to say, I would consider that for other people in other circumstances, up to, say, 40% might be 'reasonable', if necessary. Obviously this will vary from person to person.

DizzyDasher

I think it really depends on income level. I have heard of people living with 50% of their post-tax income on rent, but that is pretty frugal (as a good chunk of the rest goes on bills, food and other essentials, leaving very little for saving or fun). But it might be OK for a couple of years, e.g. if you had a strong expectation of increasing earnings. A small change in income can obviously then make a big change to disposable income/quality of life. Otherwise I have also heard the 30% figure suggested and that seems reasonable as a more "long term sustainable" figure (i.e. allowing some saving for retirement and some fun!) If you have any other significant debts then the % would need to be lower, to allow those to be serviced and paid off.

In theory if you earned more you could obviously spend a bigger % and still have enough left over for bills and to have fun. In practice I've found that as I've got older and earned more I've spent a lower % on housing costs - although I've moved to slightly nicer places I haven't felt the need to improve my living accommodation to keep pace, and at some point (certainly pre-kids at least!) you find a level that is perfectly nice enough and spending any more just seems wasteful. (Or maybe I am just a tightwad!! )

FireWyrm

Historically speaking, the banks have always considered 'sensible' to mean 30% of a the highest pre-tax wage, i.e, mortgage lending used to be calculated on a single income, never both. In the 80's, they dropped the compulsory requirement for Life Insurance which used to add another £50-£100 a month depending and so people put that towards the 'comfort' margin instead. Now, you are not required to have Life Insurance although you should very very (lots of very's) seriously consider it. Personally, I only have one wage comming in (this is a lifestyle choice) and so my mortgage will be a little under 25% of post-tax earnings. Not everyone can manage this for various reasons, I happen to be lucky, but I will be adding an additional £150 per month of various insurances on top of this to protect the non-working half of the partnership and my dependents who wouldnt have a hope in hell of servicing the mortgage without me.

In addition to this, the interest rate will be 4.69% and so for kicks and giggles, I calculated repayments on this mortgage up to 10% to see what shape of beast I was looking at. It will be getting uncomfortable for me at 10% but I could stand it which was my main worry. Anyone looking to take out a mortgage in this climate should be not only considering how much of a percentage they can stand, but also the prospect of ballooning interest rates and the possibility of redundancy or death. All of this is very important and could save you much heartache later.

LilacPixie

Ours is 23% of joint take home pay on mortgage alone. We have worked out mortgage is affordable on just one wage if needs be as well.

I do think it depends on your actual income, someone with a net take home of 1k a month would struggle if 40% of that was mortgage/rent alone but someone who earns 10k a month net would find it easier/more comfortable if their rent/mortgage was 40% of wage.

jonny_power

ours will be 26% of our joint income (soon fall to 20% when promotion kicks in), which is the same as our rent at the moment. we save about 30% of our net income to try and do the 1/3, 1/3, 1/3 rule for house, life, savings.

poppysarah

Surely you should be aiming to spend as little as possible to have as much property as possible (in the right place)...

Debt is bad.

Yakubu22

Thanks all.

Our joint net (after tax) income is £3400pm and were considering a purchase price which would equate to £715 pm mortgage. So roughly around 20% of our joint income. But with bills/tax/insurances our total house related outgoings would be just under £1100.
This doesnt include stuff like petrol/food/socialising.

Does this seem reasonable to others? If we have kids in the near future then things would be a lot more tighter.

alleycat`

Depends how i choose to look at it really.
Currently i'm paying at about 23% of earnings after tax.
If i was paying what i should be paying it would be closer to 14% (mortgage & left tracker repayment as what it was circa 2007).

I would have thought around 33% was about a top level / sensible place to be (assuming not on a serious wedge).

I am often surprised that people paying a high % of their "take home" as rent can't get a mortgage based on "affordability".
It does seem a strange reality for many people to be in that rather odd boat.

jhxmt

alleycat` wrote: »

I am often surprised that people paying a high % of their "take home" as rent can't get a mortgage based on "affordability".
It does seem a strange reality for many people to be in that rather odd boat.

In my case it's mainly due to the inability to gather a deposit of sufficient size to satisfy the LTV criteria of most mortgage lenders - affordability is a different issue, and superceded by the LTV and/or salary-multiple criteria, sadly. I imagine a lot of other renters who would find mortgage payments affordable may be in a similar situation.

ruggedtoast

If I include child benefit and working tax credits, and if I stopped paying into my pension I'd be about 33% of take home income being mortgage.

I have frack all left at the end of each month.

>:-[