How to figure out how much income to/can allocate to mortgage repayment?

Nine_Lives

We saw an IFA yesterday about mortgages & he was very helpful & explained a lot including what we can borrow, which was more than i thought (but we wouldn't want to be going top end anyway).

As ever though, you leave these situations & then questions come to you. I have just one that i think is pretty important though which i'm sure i could find the answer here....

Q: How do you work out how much of your income you can allocate to mortgage repayments?

To explain ... Between my wife & I, we earn about £2,000 (net) per month. It's actually more than that (about £2,300 really) but for easy maths we can go £2k round.

We've never had our own place & therefore don't know what the general cost of living is - all the various bills etc. We know you pay for food, electricity, gas etc etc, but don't know what you're likely to pay.

I calculated about £500 per month for mortgage, guessing that £1,500 would be ok for the bills, plus some retirement planning, plus some saving.

What i'm trying to say here is .... i don't know how much (i don't even have a clue) we would be left with in our back pockets to do with as we wish, at the end of the month.

This is before we get onto the topic of what if rates increase & your mortgage then becomes more every month.

And it's certainly before we get onto any topic of what if one stops work due to starting a family (though i guess that one would complicate this question too much right now).



So - how do you work it out when you've never dealt with these bills before? We'd like to have an idea of what our disposable income may be at the end of the month.

dimbo61

Read everything you can about the properties you are looking to buy
Check out the EPC ( heating costs)
check the council website so you know the council tax? Band A or B or C etc
Consider the age and size of the property Modern costs less to heat.
One bed flat or 6 bed mansion !!!

Nine_Lives

I could ask my mum what her monthly bills come to - but then she's in an area that's about 10 mile from where i want to live. She's in a detached house & we're looking at semis etc. I suppose it'd be better than nothing as a very rough guide. There's possibly things i'd miss/not think of (or maybe not, who knows).
I know her food shop would be more than ours, but i'd not be sure how her electricity, gas, water charges would compare just for starters.

gazter

Do a budget planner. Write down all your potential costs, obviously some will be estimates.
mortgage
council tax
utility bills: gas, electric,water,telephone,broadband
Car costs
insurances - house, contents, life,
Food costs.

I think some of the lenders have some set up. It wont be too hard to work out the estimates for a typical property of the size you are interested in.

Figures around 1/4 to a 1/3 of your net income seem to be ballpark figures.

amnblog

Barclays Woolwich would expect you to have minimum £785 left per month from your net salaries after paying your mortgage, council tax and other loans.

Even allowing for the fact that this figure seems quite low given we are on 20% VAT, you appear to be well clear.

The property you buy will be a factor in ongoing costs.

Buying a victorian terrace is likely to cost you much more in repairs and heating than a property built in the past 10 years.

Dashikii

Ok this is what I did.

1 - Find out how much you want to borrow mortgage wise and use the online calculators to work out what your monthly repayments will be. So lets assume this is £500 as you stated.

2 - Get the address of a property similar to one you may want to buy (same local authority) then use this website to check what council tax band it falls into. http://www.voa.gov.uk/cti/InitS.asp?lcn=0. Then check the local authority web page to check how much the tax band is for a year (divide by 12 for your monthly cost). Lets assume this is £120(a figure i've just plucked out of the air)

3 - Speak to anyone you know who lives in a similar property to the one you want to buy and try and find out what they pay on average for the following utilities (examples based on what i pay roughly). Water rates £30, Gas and Electricity £100, TV license £13, Phone and Broadband £20.

4 - What adhoc spends do you have each month? Travel? Petrol? Car Insurance? Buildings and contents insurance? Life insurance? etc etc

Nine_Lives

I've had a look at the tax bands for some of the houses we're interested in.

Really surprised at one of the local ones - it's a C, compared to the B in town. I know current prices mean diddly squat when it comes to whatever they were in 1991, but the areas are pretty even right now. I'm not even 100% sure that the tax band C house we're looking at was even built in 1991. I know they were built around the early 90s, but not sure it was by 1991.

I don't know anyone who lives in the areas we're looking at tbh, so we can't ask anyone.

I know the bills for my mum are:

Gas: £37.14/month
Electricity: £92/month
Water: £69.91/half yearly (so £11.65/month).
Council Tax for her is: £118/month

Katzen

In our 3 bed 1930's semi we pay 26pcm in elec and 45 in gas (of is it the other way around?) And our water is on a meter and costs £20.
Hope that helps

Yorkie1

In my 3 bed semi (sole occupier) it's £20pm elec, £40pm gas, £11pm water, council tax £95pm, TV licence £13 (it's £25pm for the first six months after you take out the licence).

Don't forget to budget for house insurance, phone / TV / broadband etc.

Nine_Lives

Ahh, i forgot the house insurance.

How does that work? That's the one where people confuse the insuring the rebuild for insuring the value isn't it?

If i'm right, then how do you calculate the cost of rebuilding the house? We'd be looking at a 150k-160k valued house that's approx 10yrs old.


Our electricity is quite high as there's 5 of us in this house. Plus the shower runs on the electricity & my brother & sister take the piddle with the amount of time they spend in there!!

BeckyMellor225

Your Mum's water bill sounds low so may still be based on rateable value rather than a meter. When a house changes hands they automatically put a meter in now (you don't get to choose) so it means this bill will be in your hands but if you are high water users then it could be a fair bit more than your Mum's.
Newer builds will be better insulated so easier to heat - a draughty old Victorian place would have significantly higher bills or you would be spending more on jumpers.

In your 'food' budget you also need to factor in toiletries/cleaning products/nappies(?). If its your first house you need to work out how you are going to finance the starter furniture - beds/bedding/towels, fridge, cooker, table & chairs, sofa etc.