Income multipliers or actual affordability?

callmechar

beecher2 wrote: »

I want a bungalow by the seaside but it isn't realistic for me at the moment so I'm planning for when it is realistic - that's life, surely?

Haha....yes I get your point, we will continue to save, but easy to lose sight. We have been saving for a while. Now saving more as paid off something

DVardysShadow

callmechar wrote: »

My point is it is dead money. We pay him a lot - get little in return. He doesnt do repairs even though they are needed. ...

somethingcorporate wrote: »

It's providing a roof over your head - it's as dead as the interest you pay on your mortgage.

I agree. A mortgage is renting money. So the interest is dead money.

But the whole 'dead money' mantra disguises a truth about housing finance and gets many a FTB into trouble by misleading them.

When houses prices are rising, if you go out and buy a house and over stretch yourself with the monthly repayments, you can always sell out and take a profit. This is when it is true to say that renting is dead money.

When house prices are static or falling, if you overstretch either there is no profit if you have to sell out, in which case the mortgage interest is a dead as the rent money - or there is a substantial loss, which prevents you from being able to sell out - and the 5% deposit you put into the house is lost as well. So both your mortgage interest and the deposit you put in are dead money - and the 'dead' money you would have spent on renting begins to look good value for the ability to buy at a later time when house prices are not going down.

callmechar

So.....consensus is that we should save for minimum 10% deposit. What is maximum mortgage you suggest? 160k? 170k? How much is enough money left after everything paid for?

somethingcorporate

I would suggest deposit + 3.5x joint income should leave you with enough depending on your other commitments. Higher is possible but as this whole thread alludes to stretching to the max is not always the best thing to do.

Wobblydeb

callmechar wrote: »

So.....consensus is that we should save for minimum 10% deposit. What is maximum mortgage you suggest? 160k? 170k? How much is enough money left after everything paid for?

Have you got an accurate budget? That should be your start point. Make sure you put in long term items such as pension contribution and savings towards big capital items like car(s) and replacing the boiler. Make sure you put in replacing the savings you spent to buy and furnish your house. Put in full repayment of your mortgage, not just interest only (save that for the rainy day when one of you is made redundant).

Looking back over the period I had a mortgage, I went from 3.7 times income to 2.7. When I first bought the house (at 3.7 times income) things were REALLY tight. I bought a new bed and sofa, but other than that everything else had to be second hand. I couldn't afford holidays or to save any money, or to replace my knackered car. By the way - this was with only one person's living costs and NO debt other than the mortgage. Luckily my pension was paid for by my company otherwise I'd be a pauper in old age. If the boiler had gone bust in that time I would have been screwed.

I'm renting and looking again now, and there is no WAY I would go beyond 3 times income. That's because there are two of us, and the sums just do NOT work above that multiple if one of us is made redundant. (and that includes paying interest only at 3.49%!)

Do a proper budget with both salaries, and then take one away and see what it looks like.

callmechar

When I get home I will copy and paste my full budget

callmechar

Our monthly budget with mortgage - monthly:

Income me £1470, partner income £1470, child benefit £86


Mortgage 1000
Council Tax 120
Water rates 22
Buildings/contents insurance 25
Life insurance/critical illness etc 35
Gas 40
Electricity 40
Housekeeping 303
TV licence 13
Partner spend 65
My spend 108
Child pocket money 22
Holidays, birthday, christmas 130
Petrol 195
Car expenses inc car tax, MOT, repairs, insurance, breakdown cover (all for both cars) 130
Mobile 20
Childcare 65
Virgin Media (Tv, broadband, phone) 50

Total outgoings: £2382

So £653 left a month....all be saved and used some to overpay, (as will any overtime) and saved and used for doing up house etc

somethingcorporate

That looks ok.

It's a bit old fashioned but the old 1/3 housing, 1/3 bills & living, 1/3 savings & emergencies can give a pretty good guide as to how you can effectively split your income and still be happy. Yours seems to be fairly close to that split so it does look workable. The only thing that would make me slightly nervous is that it would be impossible on one salary and the whole plan falls to bits.

I still think waiting a year, increasing your deposit etc would only help you in the long run. If you can live to your post-mortgage budget for the year then moving over to buying will have little to no impact.

Good luck!

callmechar

somethingcorporate wrote: »

That looks ok.

It's a bit old fashioned but the old 1/3 housing, 1/3 bills & living, 1/3 savings & emergencies can give a pretty good guide as to how you can effectively split your income and still be happy. Yours seems to be fairly close to that split so it does look workable. The only thing that would make me slightly nervous is that it would be impossible on one salary and the whole plan falls to bits.

I still think waiting a year, increasing your deposit etc would only help you in the long run. If you can live to your post-mortgage budget for the year then moving over to buying will have little to no impact.

Good luck!

Thanks. We are very sensible and do not spend much money.
It would be hard if not impossible if one of us lost our jobs, but it would be now. We are living to that now (albeit saving more as not got life insurances etc) and rent is £825pm now £1000 as mortgage would be

Wobblydeb

That looks pretty sensible - although the spends look low for "entertainment" type stuff, especially as you have a child. Where are the costs for days out?

Is your salary after student loan repayments have been deducted?

In addition are those salaries after you/employer have contributed to a pension? If not, do you really want to reach 67 with a nice home but having to live on £850 a month between you? :eek:

I'd also look realistically at the budget if one of you was out of work. The mortgage on interest only would be c£650 so without childcare costs you would need to cover living costs of £1,967. You'd get job seekers of £293/month for a period and I'm not sure what tax credits you might also get. It would be very tight! You'd manage if you got rid of the car / rented a room or took some other action. Alternatively you could look into income protection ..... although you're in the difficult position of needing to protect both incomes as they are equal so both are needed to cover your costs.