28/36 Rule

thegentleway

What do people think of max 28% of gross income on mortgage/rent and 36% on total debt servicing?

theartfullodger

Less than other similar rules of thumb.

28%  mortgage and another 8% on other debt?  So other debt taken out after mortgage?

I had a for then large mortgage when Bank of England base rate 17%  (under Thatcher...). Mortgage originally 10%

user1977

thegentleway said:

What do people think of max 28% of gross income on mortgage/rent and 36% on total debt servicing?

I would think "where did you get that rule from", because I've never heard of it before. Care to elaborate?

thegentleway

theartfullodger said:

Less than other similar rules of thumb.

28%  mortgage and another 8% on other debt?  So other debt taken out after mortgage?

I had a for then large mortgage when Bank of England base rate 17%  (under Thatcher...). Mortgage originally 10%

What % do the other rules of thumb advocate?

Yes, 8% max on car loans and credit cards etc…

thegentleway

user1977 said:

thegentleway said:

What do people think of max 28% of gross income on mortgage/rent and 36% on total debt servicing?

I would think "where did you get that rule from", because I've never heard of it before. Care to elaborate?

It’s on investopedia. Dave Ramsey and the money guys show have 25% rule for housing. 

bouicca21

If I’d gone for 25% on mortgage I’d never have had a house; I too am a survivor of the days of 17% interest rates.  Conversely I don’t do debt, so 36% is meaningless for me.

user1977

thegentleway said:

user1977 said:

thegentleway said:

What do people think of max 28% of gross income on mortgage/rent and 36% on total debt servicing?

I would think "where did you get that rule from", because I've never heard of it before. Care to elaborate?

It’s on investopedia. Dave Ramsey and the money guys show have 25% rule for housing. 

Never heard of him. A quick glance at his Wiki entry suggests he's some sort of bigoted American.

Mnoee

I don't think percentage of gross salary is a good way of looking at all situations. The cost of other essentials like food or transport don't (necessarily) rise with higher wages, so a child-free couple both on high wages could afford to go above it and still have an excellent quality of life. On the opposite end, very few 18 year olds earning minimum wage will have the option of renting something for less than £310 a month, so will be forced to go above it and struggle. 

There's just too many variables for one rule like this to work for all. If it works for you, great. 

thegentleway

bouicca21 said:

If I’d gone for 25% on mortgage I’d never have had a house; I too am a survivor of the days of 17% interest rates.  Conversely I don’t do debt, so 36% is meaningless for me.

It does highlight that housing is too expensive in the U.K.!

agreed about debt. We don’t have car loans or credit cards either so one interpretation could be going to 36% on housing as the other debt is 0%

thegentleway

Mnoee said:

I don't think percentage of gross salary is a good way of looking at all situations. The cost of other essentials like food or transport don't (necessarily) rise with higher wages, so a child-free couple both on high wages could afford to go above it and still have an excellent quality of life. On the opposite end, very few 18 year olds earning minimum wage will have the option of renting something for less than £310 a month, so will be forced to go above it and struggle. 

There's just too many variables for one rule like this to work for all. If it works for you, great. 

Indeed, just interested in discussing how much to spend on housing.

MovingForwards

Spend what you feel comfortable with.

I borrowed 3.3x my income, just over £21k with a 15% deposit. I've a lot of flexibility changing jobs to earn more / less and comfortably afford my lifestyle.