Mortgage Affordability Calculations - Living Costs for Family

dsab

I had an appointment with a Bank recently for a Mortgage application, and was a bit struck of how high a figure they were using for the Living costs (in their words heating, electricity, food and clothing) for a family of 4.They were putting in £1300 pounds as their standard figure. Is that a realistic figure? We would never spend this much per month on those 4 Items, which might be due to the fact that our kids are still small.

Their Calculation went like this:

Net Household income
- £1300 Living Costs (family of 4)
- £180 per car
- Building/Life Insurance
- Phone/Broadband Costs
- childcare costs
- Existing Credit Commitments
- Mortgage Quote
- 3% stress testing

and below that there needed still to be some excess of at least £200GBP left. While we had no problem passing that, it got me wondering afterwards.

Even for a reasonable small mortgage of 100K a family with one car, no childcare costs and no credit commitments would require at least £2800 after taxes a month to pass that. If I am not wrong that would require approx. 45K before taxes plus Child Benefits. Going by the average salary in the UK there are not too many people who in reality bring this much home.

Are all lenders using this kind of calculation? And if so, do families on lower incomes really have a chance to get any mortgage these days?

Thrugelmir

dsab wrote: »

and was a bit struck of how high a figure they were using for the Living costs (in their words heating, electricity, food and clothing) for a family of 4.They were putting in £1300 pounds as their standard figure. Is that a realistic figure? We would never spend this much per month on those 4 Items, which might be due to the fact that our kids are still small.

You could add in. General rates, water rates, property maintenance, TV licence to name a few.

The way of counteracting this is to draw up your own budget. Though you may be surprised by the outcome.

HappyMJ

£1,300 is about right although I would argue that the Phone/Broadband costs should be included in that figure.

The figure of £1,300 is roughly based on the benefits figures that a family of four would get if they did not work, were seeking work and would need to live a basic lifestyle. £111.45 a week for a couple, £64.99 per child plus £17.40 for the family. Total £258.83 per week or about £1,125 per calendar month. They are using any excess income over this figure to meet other commitments and the remainder can be spent on mortgage repayments.

dsab

Thanks for the responses.We keep a very detailed budget, and we are just about spending that figure, but that would include running 2 cars and our current (private) rent per month. Seems we are living just very frugal right now. :-)

I forgot that Rates wasn't included in that 1300, as it was a separate Item that was deducted.

gaz141

are you saying that a family of 4 would have £1300.00 per month in benefits? do they pay rent and council tax from this or is this just their available spend every month after deductions?

vectistim

Might they have grossed it up too?
When applying income multiples pre-tax income is generally used, but these expenses are net of tax.

michaels

So I guess as a follow up question, if you had evidence to demonstrate that your living costs were less than this would the underwriters be willing to look at this or do they only work on their figures?