Know how much I can get, but how much mortgage should I get?

JeffMason

Hi All,

I've got a mortgage broker and an 'in principle' offer, so know the most I can borrow, but I'm just confused about how much is sensible to borrow...

I earn £1780 a month after tax and have read that up to 35-40% of that is fine - but that seems like a lot to me. I was thinking around £400 a month on mortgage was sensible and keeping my house search budget within that, but perhaps I can go a bit higher? I've also filled in online forms that tell me that above what I'm thinking is a terrible idea and so I'm now baffled as to which advice to follow.

I don't have any debts, basic monthly outgoings, minimal holidays and going out spending, but travel costs for work are around £150 and child maintenace is the same.

What do people think about that 35-40% idea? I'm working on more like 22% at the moment. I don't want to overstretch myself but don't want to settle on a smaller or worse located property when I don't have to...  

xMeganCL

The mortgage I'm applying for will be about 17% of my income. I feel like 40% seems a lot 

csgohan4

what is comfortable with you, there is not figure set in stone. 

Lipstick99

You need to be able to pay for repairs, replace large items etc.
Play around with length of mortgage as well. Plus any large increases in repayments. You need a cushion as all numbers work on paper. Your outgoings are higher than you think. 
Food, mobile, gym, council tax, utilities, fuel, car payments, dentist, water etc

Stenwold

It's all relative, so depends on your own circumstances.

However, I'd say 35-40% is quite high, especially considering how low interest rates are at the moment - over the next 5 years rate increases could easily push your monthly payments up a further 5-10% of your salary.

Thrugelmir

If interest rates were 6% how affordable would it be then. A far better guide than current low rates. 

theoretica

Are you renting at the moment?  How much are you paying and what's included?  Are you looking at properties with maintenance/lease charges?  What are your career prospects for pay increases?

MaryNB

If you're comfortable with £400 go with that. On a fixed-term mortgage, a lot of lenders will let you overpay 10% of the balance each year without penalty - that is 10% of the balance on the 1st of January that year. Therefore you're not stuck with paying £400 if you can afford more. If you end up overpaying regularly, you can look at reducing the length of your mortgage when your fixed term comes to an end. This can give you some flexibility regarding your monthly payments. 

I applied for a mortgage that is 27% of my take-home pay. I could go higher but I wasn't comfortable doing so. I'm planning to get a lodger in after the first few months so will use that income to overpay. 

HCIMbtw

Lets say you could afford a mortgage of £700, but only want to commit to a mortgage of £400 at the moment. 

You will pay off your mortgage much slower, but have easier access to your money and be able spend it, save it, invest it, put it into a pension. 

If you calculate this on spreadsheet you will be able to see how many years the difference is

it all it comes down to how you want to plan your money, you could have an interest only mortgage and plan to never own your house at all, so could maybe even get a mortgage at like £250-300... but I can't say this is my preferred approach, you are effectively not paying off any of the debt you owe the bank

As a broad breakdown I personally put in 30% of my salary in a joint account which covers mortgage, bills & food, Mortgage currently to be paid of at about the age of 55, would like to get that down at least 5 years though, but we will see.. 25% in saved/invested, 15% in pension, 5% paying off student loans.. the rest of it is tax, it works for me as I can flex the savings element very easily to account for life.. ideally it will help with retirement or paying mortgage off earlier, but that is at least 12 years away from needing any real consideration. Also worth noting as Thrugelmir outlines, if mortgage rates go up significantly I could basically just accommodate those types of changes within my salary that is currently saved. 

Appreciate other peoples circumstances might not reflect mine, but hopefully gives and idea of a way to budget and plan. I would not detach paying off your mortgage from thinking about retirement ambitions though. 

JeffMason

Lipstick99 said:

You need to be able to pay for repairs, replace large items etc.
Play around with length of mortgage as well. Plus any large increases in repayments. You need a cushion as all numbers work on paper. Your outgoings are higher than you think. 
Food, mobile, gym, council tax, utilities, fuel, car payments, dentist, water etc

Thanks! I've taken into account most of that - except for dentist, repairs and replacing large items! With my £400 per month version I have around £500 left each month, most of which would be saved and be there to cover those unexpected costs if needed. And keep my teeth sparkling white of course.

JeffMason

Stenwold said:

It's all relative, so depends on your own circumstances.

However, I'd say 35-40% is quite high, especially considering how low interest rates are at the moment - over the next 5 years rate increases could easily push your monthly payments up a further 5-10% of your salary.

The article that had the 35-40% was from 2015 so... I'm only looking at mortgages with a 5 year fixed rate so that covers me for a while at least.