Household income £83k / what mortgage repayment is affordable?

andthenjazzonasunday

Hello,

I know I will need to speak to mortgage adviser at some point, but thought I’d see if anybody on here has any thoughts, especially those on a similar income. 

I earn £45k, husband earns £38k. Child benefit of £159 p/m. So monthly income is around £5k. 

Currently owe £189k on mortgage with fixed rate of 1.88% for another two years. 

To move house we’d be looking at borrowing at the very least another £100k, but possibly up to £200k. 

The thought of £200k scares me a bit, but we might not be able to get a bigger house with only an extra £100k. 

Current mortgage payment is £825
other direct debits total around £1,400
food is around £400 per month
lucky to have low childcare costs of around £100 per month. 

I have been saving extra income to put towards house move, but it will likely go on stamp duty etc. I have around £20k saved. Probably have around £170k
equity in the house. 

I have been saving money rather than using it to overpay the mortgage, because the mortgage is currently on such a low rate. I thought there is no point paying it down to then have to borrow more at a higher rate, I’d be better saving in order to then have to borrow less as a higher rate - but is this correct?

any thoughts / advice greatly appreciated. I am not particularly financially savvy! 

Edi81

You really need to do an SOA to work out what is affordable for you as a family. 

Everyone is different - some eat out lots others don’t, some want new cars others don’t. 

MattMattMattUK

It depends on everything, not just a few snapshots of cost. I would also say from experience on here, as all your costs are "around" the actual, if you looked at 12 months bank statements and averaged them out you would find that they are far higher. As an example, ignoring pension contribution (which could account for the difference) your monthly net household income is £5,533.03 based on the income figures, that should mean you have £2,808.03 left over every month, before entertainment spending, how much of that is actually left at the end of every month?

andthenjazzonasunday

MattMattMattUK said:

It depends on everything, not just a few snapshots of cost. I would also say from experience on here, as all your costs are "around" the actual, if you looked at 12 months bank statements and averaged them out you would find that they are far higher. As an example, ignoring pension contribution (which could account for the difference) your monthly net household income is £5,533.03 based on the income figures, that should mean you have £2,808.03 left over every month, before entertainment spending, how much of that is actually left at the end of every month?

MattMattMattUK said:

It depends on everything, not just a few snapshots of cost. I would also say from experience on here, as all your costs are "around" the actual, if you looked at 12 months bank statements and averaged them out you would find that they are far higher. As an example, ignoring pension contribution (which could account for the difference) your monthly net household income is £5,533.03 based on the income figures, that should mean you have £2,808.03 left over every month, before entertainment spending, how much of that is actually left at the end of every month?

Hi Matt, 

yes, pension contributions are the difference. 

Net is just under £5k. 

Which would put your £2,808 figure down at about £2,250. 

I’m currently putting around £1,000 per month away towards the house move. 

£70 on petrol 

£100 in an account for car repairs etc

£100 in holiday account 

£70 in Christmas account 

can’t think what else off the top of my head. I’m guessing miscellaneous spends, days out etc. 

MattMattMattUK

andthenjazzonasunday said:

MattMattMattUK said:

It depends on everything, not just a few snapshots of cost. I would also say from experience on here, as all your costs are "around" the actual, if you looked at 12 months bank statements and averaged them out you would find that they are far higher. As an example, ignoring pension contribution (which could account for the difference) your monthly net household income is £5,533.03 based on the income figures, that should mean you have £2,808.03 left over every month, before entertainment spending, how much of that is actually left at the end of every month?

MattMattMattUK said:

It depends on everything, not just a few snapshots of cost. I would also say from experience on here, as all your costs are "around" the actual, if you looked at 12 months bank statements and averaged them out you would find that they are far higher. As an example, ignoring pension contribution (which could account for the difference) your monthly net household income is £5,533.03 based on the income figures, that should mean you have £2,808.03 left over every month, before entertainment spending, how much of that is actually left at the end of every month?

Hi Matt, 

yes, pension contributions are the difference. 

Net is just under £5k. 

Which would put your £2,808 figure down at about £2,250. 

I’m currently putting around £1,000 per month away towards the house move. 

£70 on petrol 

£100 in an account for car repairs etc

£100 in holiday account 

£70 in Christmas account 

can’t think what else off the top of my head. I’m guessing miscellaneous spends, days out etc. 

I think you need to take Edi's advice and do a full SOA, even if just for your own purposes, using twelve months bank and credit card statements for both you and your partner to work out where the rest is going, you might also find subscriptions you no longer use, the "little things" you do not really think about add up to a significant amount over the course of a year etc. A potential house move is as good a time as any to give yourself a financial audit. 

andthenjazzonasunday

Thanks @MattMattMattUK. 

I will try to do that.

The issue is, I’m not sure how reflective of our current situation that will be. 

I’ve had a decent payrise in the last year or two, and childcare costs have dropped significantly. 

So we’ve had a lot more disposable income than we’ve been used to. 

We managed fine before on much less, so I’m keen to move house and start paying for that rather than fritter the extra income away. 

I’m not extravagant, I wouldn’t actually fritter it away, but you know what I mean. Get used to having it. 

We have been very, very skint before, and I was meticulous about tracking every last penny. 

Now that we are more comfortable, I haven’t been doing that. Partly as we don’t need to as much, partly as life with kids is so busy. 

So there is an element of feeling that we will cut our cloth accordingly with a bigger mortgage. But coupled with being naturally quite cautious and not wanting to overextend ourselves. 

Based on what I am currently saving towards a new house, we could manage a mortgage payment of £1500 no problem, I think. 

The issue is that that might not be enough for us to take the next step up the ladder. 

MattMattMattUK

It is all about what people have got used to, to some people just being able to cover the basics would be luxury, to others a thousand pounds a week spending money is not much, we and our social circles adapt so be wary of trying to cut back too much in one go, but I do agree, putting the money towards something productive like mortgage payments is a good idea.

It would also make sense to speak to a broke and see what your borrowing capacity is and what payments that could lead to. Your current 1.88% rate is likely to rise to 4.5-5.5% if you need to borrow an additional amount, that could lead to a significant rise that feels out of proportion with the additional borrowing. 

JustMe18

We have net income at around £6000 per month. Recently calculated and we can afford mortgage payments around £2000, I wouldn't pay more than that  personally so this is our limit, when we started looking now for mortgages ( at the moment we pay £300 for our mortgage lol , so it's a big jump), I guess our spending is similar, as we also have £400 on food, don't have childcare costs etc.

alanyau88

'Currently owe £189k on mortgage with fixed rate of 1.88% for another two years. 

To move house we’d be looking at borrowing at the very least another £100k, but possibly up to £200k.'

Using the mortgage calculator for an extra £200k (£389k) at 4.5% mortgage rate is £2,161 per month. 
At an extra £100k (£289k) at 4.5% mortgage rate is £1,606 per month.
Don't forget to factor in stamp duty, solicitor costs, moving costs, and the penalty charge for breaking your current fixed rate.  For a £350k house that's £5k stamp duty, and the penalty charge for your fix say another £5k.  

Can you afford the extra costs above?  If you can, go for it!  If you can't, then maybe sit down and crunch your numbers to see what you can live with without compromising your living standards for 25 years.

secla

Depends on your preferences, If you like to drive a nice new car every few years and have 2/3 holidays etc
My household income is lower than yours and recently got a 300k mortgage but i make do with an older car have 1 holiday a year etc.

andthenjazzonasunday

alanyau88 said:

'Currently owe £189k on mortgage with fixed rate of 1.88% for another two years. 

To move house we’d be looking at borrowing at the very least another £100k, but possibly up to £200k.'

Using the mortgage calculator for an extra £200k (£389k) at 4.5% mortgage rate is £2,161 per month. 
At an extra £100k (£289k) at 4.5% mortgage rate is £1,606 per month.
Don't forget to factor in stamp duty, solicitor costs, moving costs, and the penalty charge for breaking your current fixed rate.  For a £350k house that's £5k stamp duty, and the penalty charge for your fix say another £5k.  

Can you afford the extra costs above?  If you can, go for it!  If you can't, then maybe sit down and crunch your numbers to see what you can live with without compromising your living standards for 25 years.

@alanyau88 it wouldn’t be that much. 

I will not be paying an early repayment charge. I have two years left on my current mortgage and can port it to a new property. So the new rate would blended with this to bring it down a little bit for those two years. Then obviously will need to remortgage to prevailing rates in two years. 

Yes, I have cash saved for stamp duty etc. 

it wouldn’t be a £350k house though. Our current property is worth in the region of £370-380. 

The issue is that to take the next step up the ladder it is a significant jump. I’d say £450k at a minimum.