Affordability question

colink24

Hi All

My wife and I recently had a baby and so are looking to move to a larger property. We currently have a morgage of £145,000 and pay £600 a month. Our house is practically sold and we had decided to rent but are now having second thoughts.

My wife is not returning to work. My question is around affordability. I currently earn £50,000 basic with overtime of between £5,000 and £10,000.

We have outstanding debts of £12,000 on credit cards, of which I pay usually minimum of around £350 per month total. We have no savings and total expendituve of around £1800 per month all in.

My question is what chance would I have of securing a mortgage of say £220,000 on help to buy? We would have around £10,000 equity from our current property after all fee's are paid. Whilst calculator says I could get 4 or 5 tiimes my salary, I know the lender will take into account other debts etc. I will go to a broker this week but wanted to see if anyone could give me an idea before I do.

Thanks a lot in advance.

Thrugelmir

£12k of credit card debt serviced with just minimum payments doesn't auger well. Lenders will also assess affordability at 7% interest rates. The concern for the lender will be your relatively poor financial position given the low mortgage outgoings that you have currently. Is your existing mortgage on a repayment basis?

dimbo61

You need to look at all your spending and cut up the credit cards (except one) tonight.
You are spending way more than you earn, Wife will need to return to work.
Selling up and renting is madness when you are only paying £600 a month mortgage.
How much would you pay out each month in rent ?

averageish

In my opinion, the old formula of 3x annual salary for a mortgage limit is still valuable when it comes to a simple check for affordability (allowing for proper savings and emergencies). Without a large deposit, £220k would really be extreme and you are setting yourself up to fail.

Help to buy is no help at all if the house is too expensive to begin with, it really is not designed for that. Without going into too much detail, it is a scheme to make mortgages accessible where a deposit is not, rather than leveraging peoples income to the hilt. It still has to be paid back!

Don't forget that with any move of house, you'll have legal costs for a purchase, stamp duty and other fee's for searches and so on. These really need to be paid cash, and you said you have no savings. Adding them to a mortgage is in my opinion, insane, yet some people do it!

With your salary and debts of only £12k, you have a good opportunity to clear everything but your mortgage in very short order, and this is the advice anyone with any financial sense would give you. The interest on the credit card will be huge. Yes its true, paying down debt is a boring pastime, but the end result is rather liberating.

Long story short, £220k is not affordable for you at the moment. Even if a lender agreed to it, it does not make it affordable, as you know I'm sure.

You have a good salary and obviously work hard for it, you have financial flexibility to pay down your debts and have a roof over your head even when the interest rate rises, which obviously it will. You had the awareness also, to come here and ask, which probably means you don't think it is affordable, so go with your gut.

Don't fall into the trap, otherwise you'll be back on here asking for advice, and in a position where you won't have the flexibility you do now.

Best wishes, what ever you decide.

PS. I say this as someone who at 18 took a 125% mortgage from Northern Rock and sold a year later, missing out on the housing boom and saddling me with £27k debt, which I only paid off 5 years ago. So I've been there when it comes to housing acquired debt. Trust me, you don't want to be in that position my friend.

kingstreet

Maximum mortgage is going to be in the region of £170k with a non-working spouse and dependent child with that level of card debt, which many lenders will take 5% of the balance as the monthly cost.

smifffy1989

Is it too late not to sell? That way you have somewhere to live whilst paying down your debts and saving for a move to a bigger house.

steeeb

What is the season for selling and renting? Can you rent somewhere bigger cheaper and still be able to save up money to buy somewhere?