Mortgage Finances - Disposable Income

Richard_Richard

Hello All,

Myself and partner have seen a house we like and put in an offer that has been accepted. We are due to see a mortgage advisor in a couple of weeks and on the face of it we should have a good chance of obtaining a mortgage in principle. In brief our current situation is:

House offer accepted at: £255k
Deposit available: £50k
Our salaries: combined we bring in about £70k/yr AFTER all tax, deductions, pension etc

So our combined salary looks pretty good and we need a mortgage of £205k (about x2 combined salary before tax).

However having looked at our previous 3 months bank statements it turns out that we basically have little disposable income at the end of the money. We don't really have that much debt (personal loan repayments are about 10% of our income/month) but we spend a shed load of money on what's basically "luxury" purchases. For instance my partner spends around £500 at coffee shops such as Costa, Starbucks etc. We spend about £1k a month on takeaways and eating out, and so on.

So whilst we could stop doing a lot of this, it would take 3 months before we had bank statements showing we aren't basically spending everything we earn. I'm not sure if an assessor will look at our current spend rate and realise that a lot of it we can stop if we need to, or just look at it and think we're just bad with money!

Our mortgage will be more expensive that our rent, which is only £500 a month at the moment as we are renting from friends. Our mortgage repayments are more likely to be £1200 a month, so we need to find £700 a month more. This is actually pretty easy as we spend a lot we don't have to, but I'm not sure if a bank would view it this way or just look at incomings vs. outgoings and think we don't have any spare money!

Does anyone know what the criteria are? At a high level we should be able to get a mortgage as we have a big deposit, good incomes etc, but I'm just not sure how our spending habits will be viewed.

Brie

I suggest you go on to the debt free forum and look for the statement of accounts (SOA) which should be on one of the top stickies.  You can use this to put together a comprehensive budget to see what you can easily eliminate (you already know some of it of course) and then play with the numbers to get a budget that a bank might like.  Keep a copy of the "old" budget (what you do now) and the "new" one (what you need to do to in the future, starting now).  That will show the bank that you are aware of the pinch points and what needs to be trimmed to make you an ideal customer.  

And if you're buying each other Christmas presents I suggest that a good coffee maker (Nespresso or similar) and flasks and/or travel mugs are bought.   This will cut down the Costas and Starbucks.  And maybe go to a couples's cooking class to learn how to more easily avoid the takeaways.  Nothing the matter with an occasional treat but £1k a month is a lot of pizza deliveries!!!

ACG

I am amazed an agent has accepted an offer on a property without a DIP and no sign of getting one for a few weeks. I dont many agents would entertain you let alone accept an offer in those circumstances around here. The agents there sound far nicer than the ones around here. 

But to answer your question, most lenders use ONS figures rather than actual spending. Some may not even ask for bank statements. You should be fine. 

jimjames

One q, if you're spending all of your earnings, how did you build up the £50k deposit or was that gifted?

Richard_Richard

jimjames said:

One q, if you're spending all of your earnings, how did you build up the £50k deposit or was that gifted?

Equity from our previous home which we spent five years renovating then sold. :-)

grumbler

https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2022#glossary

Disposable income is arguably the most widely used household income measure. Disposable income is the amount of money that households have available for spending and saving after direct taxes, such as Income Tax, National Insurance and Council Tax, have been accounted for. It includes earnings from employment, private pensions and investments as well as cash benefits provided by the state.

Your disposable income is high. You've just been spending it on 'luxury' unessential things and will have to change your spending habits if you get a mortgage.