The gulf of 'affordability'

Davewils

I am on £20,000 a year, and at present i pay £575 a month out in rent. Rent + all related bills = 60% of my monthly income.

This is 'affordable' i have been doing this for the last year, haven't missed a single bill payment, ok so i cant afford to go out much or buy myself alot of things but it's definitely 'affordable'.

I am currently looking into taking advantage of the government's FirstBuy scheme and getting on the housing ladder. But according to the 3-4 times mortgage rule, i'm likely to only get about a £60-80k mortgage. But at this level of mortgage my monthly payment (interest+capital) will be around £350. Interest only and it's £180 pm.

Now i'm sorry, but where on earth do they get the idea of 'affordability' from? If I was paying out only £350 or £180 pm in mortgage payments, i would be laughing my head off!

Does 'affordability' now mean "still have enough cash each month to buy big screen TV's, iPads, etc etc" ?!? To me afforadable means the ability to 'get by', not too many luxuries, perhaps a couple, but certainly not having circa £900-£1100 spare each month!

The place i'm looking at would require me to get a mortgage of £115,000 which by these calculations just wouldnt even be considered. Even though I would be paying LESS each month than i am right now and have been for the last year. And if i got an interest only mortgage, i would be looking at around £380 pm, which would be amazing!

I could have my own place and have £200 less each month going out.

Why do they class 'affordable' so ridiculously?

Thrugelmir

Davewils wrote: »

Now i'm sorry, but where on earth do they get the idea of 'affordability' from? If I was paying out only £350 or £180 pm in mortgage payments, i would be laughing my head off!

With property ownership comes all the costs. Something you are insulated from when renting. Boilers, kitchens, bathrooms, double glazing, pointing etc are require maintenance in the longer term.

casualwalks

I suppose it is because interest rates change. So what is affordable when interest rates are low becomes very unaffordable when interest rates sky rocket. Even if you fix, there's no telling what rates will be when you come to renew.

one_hot_minute

Interest only? How do you plan to pay the £115k back when your term is up?

willing2learn_3

Dave, I'm in the same situation - probably slightly less well off than you but it's similar.

I asked the bank and she said it's the strict criteria and risk calculations that are being used....it's about only wanting to lend to a certain level in the ladder than the risk goes right down with. Idea being that there are often unexpected costs that mean that we can't just get by.

She said to me that it does seem unfair but the way the banks see it - they are not obliged to lend to someone just because they can afford to pay back....they lend to who they want to. It's business.

I'm single and renting but i'm learning all the time and there are other ways to invest.... ;-)

brit1234

I am personally glad bank lending has got tighter. Davewils how much deposit have you got? Interest only on a over priced shared equity property in a falling Market is suicidal.

Is there any chance you can get a second job to get a bigger deposit while cutting costs.

princeofpounds

You do realise that interest rates can go up don't you? Defining affordability based on your first month's payments is not a bright thing to do.

To be fair, most people fall into that trap, and prior to the crisis many banks did too.

Consider that long-term average interest rates are more like 5-8% (depending on how you define the long term) and that's interest only...

Davewils

brit1234 wrote: »

I am personally glad bank lending has got tighter. Davewils how much deposit have you got? Interest only on a over priced shared equity property in a falling Market is suicidal.

Is there any chance you can get a second job to get a bigger deposit while cutting costs.

I would only be able to work 10 hours a week in a second job as otherwise i'd go over the EU maximum work directive. This would be nigh on pointless after tax and would rule out any flexibility i have in my personal life aswell.

The FirstBuy scheme: = 20% of value paid by builder+government
5% Deposit required.

A 10% deposit shouldnt be a problem. but I get the feeling i could put in 50% and the banks still wouldnt lend based on their 3-4 times criteria.

Davewils

Thrugelmir wrote: »

With property ownership comes all the costs. Something you are insulated from when renting. Boilers, kitchens, bathrooms, double glazing, pointing etc are require maintenance in the longer term.

Yes indeed but are you saying that the cost of property maintenance on a new build 2 bed flat would be circa £10000 a year?!?

Thrugelmir

Davewils wrote: »

Yes indeed but are you saying that the cost of property maintenance on a new build 2 bed flat would be circa £10000 a year?!?

£10,000?

Not sure where you get that figure from.

A £115k mortgage plus property service charges on a flat would cost you far more than £575 per month.

Davewils

Thrugelmir wrote: »

£10,000?

Not sure where you get that figure from.

A £115k mortgage plus property service charges on a flat would cost you far more than £575 per month.

I quoted that figure as i said given their "affordability" requirements i would have up to £1000 a month spare compared to what i'm paying out now.

Also, what do you mean by service charges? If you mean mortgage + bills, then i'm currently paying out £800 per month in rent+bills.