Bank has agreed mortgage in principle, but seems unaffordable to us!

Wizzbang

Hi,

I was wondering if anyone can explain- the bank has agreed to offer us a mortgage in principle (since all the regs were tightened up) but, having crunched the numbers- we don't think we would be able to afford anywhere near the amount they are suggesting- it would be more than my husband's salary. Less than half in fact. So what is going on here? I thought banks calculated all of this when they took your income figures from you? Our basic outgoings are nearly £1000 a month (the essentials like Council Tax, insurance, gas and elec etc), maybe slightly higher in a larger property and there are no more savings to be had. We live an incredibly frugal lifestyle, we are minimalists.

We have a SIGNIFICANT deposit, I wouldn't even call it that- our loan to value is 21% if we spend our max, or less if we can get the property for less than asking price or buy a cheaper property. Maybe that is a factor? We just don't want to waste our time and money, applying for the full amount they have promised, only to be turned down.

ACG

How much is your income?
How much have they said they will lend you?

Have they said over how many years that figure is based on?

If you are coming up to the end of your mortgage and have say 5-10 years left and the figure they have given you is based over 25 or 30 years then that may explain it?

Wizzbang

Hi,

My husband is on a NQT salary which should rise by about £1000 in September at the start of the new school year. Currently it's approx £20,800 before tax, I believe. Basically, it's peanuts. We have not used my income at all because I am self-employed and it's not reliable. Lender says we could be lent £79,000 over 25 years. We've never had a mortgage before, always been cash buyers- this would be our first mortgage.

Thrugelmir

It's only an offer in principle. Which is not the same as an actual offer.

The lender will assess affordability as part of the application.

A better way of approaching the topic is to decide how much you can afford. Then base your decision from there.

Snuggles

Not sure if I'm missing something here, but if you don't think you can afford the repayments, don't do it, no matter what the bank says!

ACG

Thats less than 4x income.
You genuinely dont believe you could afford that?

If thats the case I would say your probably not living as frugally as you believe you are? Not that you should have to live on a shoestring, but if you can not afford an £80k mortgage over 25 years at 14% LTV there is something amiss.

Wizzbang

ACG wrote: »

Thats less than 4x income.
You genuinely dont believe you could afford that?

If thats the case I would say your probably not living as frugally as you believe you are? Not that you should have to live on a shoestring, but if you can not afford an £80k mortgage over 25 years at 14% LTV there is something amiss.

I think that's quite rude. The reason I don't think we can afford it, is even at the current interest rate we have been offered of 2.2% (due to our low LTV), the repayments are more than my husband's salary, after essential expenses (as mentioned before; council tax etc). Put simply, no- I don't believe that to be affordable, if it is more than he earns.

I am 100% certain that we are living as frugally as possible because we always shop around to get the cheapest insurance quotes, we only buy reduced food or basic brands, I cook everything from scratch, we don't go on holiday, we go out only rarely for a meal etc and that's usually a mystery shop at no cost to ourselves, we don't buy anything that we don't need, what we do buy is bought in charity shops or sales and we follow a minimalist lifestyle (perhaps you ought to read about what that involves) have sold 90% of our possessions in the last year. We don't have any debt and are currently mortgage free which not many people could claim to have achieved at 30.

Thrugelmir

Wizzbang wrote: »

the repayments are more than my husband's salary,

?????

£79k borrowed over 25 years at 5% is £462 a month repayment.

A £20k a year salary is a net £1,380 per month.

Your comment makes no sense.

ACG

You think thats rude?

I could beat around the bush all day long but I would prefer to be direct and get to the point... If you find that rude I apologise as that was not intention but I think you need to toughen up a bit if that really is the case.

£79k at 4% over 25 years is £420 (approx).
Your husbands income is £1400 after tax per month (approx)? (based on some quick sums)

So your saying you cant live on £1000 a month?

I stand by my comment above if you genuinely believe that to be the case.

Wizzbang

Thrugelmir wrote: »

?????

£79k borrowed over 25 years at 5% is £462 a month repayment.

A £20k a year salary is a net £1,380 per month.

Your comment makes no sense.

On the contrary, your comment makes no sense- my essential outgoings are £1000 + a mortgage repayment of £462 (although banks will now check you can afford 7%). Regardless, that is £1,462- £1,380 salary= negative £82 a month. £982 worth of debt accumulated per year! Leaving no money to save or cover any unexpected emergencies. Hence my question about banks, I thought they were trying to be responsible lenders, or being forced to be by the Government.

RickyC_IFSWP

As has been mentioned already, a mortgage in principle simply says you should be able to borrow that amount based on your income & credit score. The mortgage company still needs to underwrite the case as part of the next stage of the application process and will of course assess your affordability.

If you personally do not feel you can afford a mortgage, then the simple solution is to not borrow.