Is Our Mortgage Sustainable? Advice Needed

BikingBud

Lets_fly said:

BikingBud said:

Lets_fly said:

We are first-time buyers, and our mortgage for a house of £575k has been approved with an interest rate of 4.44. Loan term is 28yrs. Got it with Nationwide with 5.5x of salary and they counted my annual bonus. We are putting down a £110k deposit(19%).So the mortgage amount is 465K and rest balance we are paying as deposit.  We are about to exchange the contract in 1 or 2 weeks.

 My take-home income is £4,200 per month, and the mortgage repayment will be £2,430 per month. I am 46yrs old and the only earner; my wife does not work, and we have a 13-year-old son.

I made a rough calculation of all my outgoing it's coming to £4100 .

Given the current cost of living, I would like to know if this setup is sustainable. Any advice or insights from those in a similar situation would be greatly appreciated. Any thing I can do to make it sustainable 

What has it been stress tested to 8%, 9% and what would that do to the monthly payment?

If it increased to that amount how would you fund it?

Is your wife able to work?

Can she generate the income necessary to cover the increase in mortgage?

What happens if you lose the bonus?

Do you have a slush fund?

Can you afford to overpay and or save to build the slush fund such that you can cover any "unexpected" arisings?

I would offer that if you cannot answer positively and cover these aspects then you are overreaching and should very carefully consider your position before committing.

Honestly, I did not think of all these things. May be have some £20k slush fund that's all .  

Perhaps now is the time to honestly and urgently consider them before you are committed.

The fact that there might not be an obligation to stress test to 8 or 9% doesn't mean you don't need to understand what the worst case scenario is and how it will impact you.

Trusting to luck is not effective money management, if it works out for you then great but if not.... there are many who still pop up with great difficulties as they are on interest only mortgages or who consider themselves mortgage prisoners because they all trusted others who said the worst would never happen.
  

silvercar

Are you prepared to make cutbacks in other areas if necessary? 

Some people will happily give up holidays on the grounds they have the house of their dreams for 52 weeks a year, rather than a make do house for 48 weeks and holidays for 4. 

The general trend is for income to increase, even if only by cost of living pay rises, whereas your mortgages stays the same.

MWT

silvercar said:

The general trend is for income to increase, even if only by cost of living pay rises, whereas your mortgages stays the same.

... not normally to the age of 74 though...

MacMickster

OP.  How much is your annual bonus and how much can it be relied upon?  Your lender has included it in their affordability calculations which suggests that they consider you are likely to get a similar sum each year.

If, for example, your bonus after tax gave you an extra £500 per month on average then the affordability is less tight.  Also, you know your own career prospects and whether you are likely to be achieve more than just inflation increases to your pay over the next few years.

[Deleted User]

Wife going to work would seem to be the obvious solution.

With minimum wage approaching £25k per year, staying at home is an expensive past time.

She will be accruing NI years until your child is 18 but at that point NI stamp will need to come from somewhere.

A job in local govt/education/nhs job would also offer plenty of opportunity to build a pension.

All that pressure on you, one earner and a large mortgage, it doesn't seem reasonable to me (I obviously don't know all the facts).

thegentleway

I was concerned we were overreaching for our mortgage and found the 28/36 rule, which states housing should not exceed 28% of gross income (36% is for total debt).

Assuming your gross income is £85k inc. bonus, 28% would be £1,983 (and 36% would be £2,550) so that says you are taking on way too much housing debt…

ian1246

I think I'd be having a serious conversation with the wife tbh. Even a 20hours a week part-time job at minimum wage would amount to £11,897 a year - take home of £991.42.

Or if she puts the minimum amount (5%) into an auto-enrolment pension, £967.85.

This is actually a far bigger issue than just the mortgage - it sounds like your outgoings are insanely high for your income and it also begs the question of what exactly your pension provision looks like - not just for you but also wife?

Frankly unless there's a medical issue, in your shoes I 100% would be expecting wife to work - potentially full time - in order to contribute to the families overall wellbeing.

I think your really over stretching without wife's help.

kingstreet

I can understand using a retirement age of 75 to reduce the contractual monthly costs but you really, really need to factor-in the ability to make overpayments to get that term back down to something more realistic. Pension income isn't going to be as much as earned income and eating that up with mortgage costs makes no sense.

LadyWithAPlan

I think you need to sit down with your wife and go through your last 6 months bank/cc statements and add up  every spend  and work out exactly what you have spent on avg per month on
food
going out + entertainment
gifts
utilities + Council tax + mobiles
holidays
kids expenses
car costs and travel
clothing
tech for the home

Not what you think  you spent but what you  actually did, to the penny, and  how much saved into savings, pensions as well

If you really only have £100 pm wiggle room - have you looked at what happens when  bills go up including the new council tax, water etc
... 
Then look at of the running costs of the new home - will the bills and council tax be higher etc etc? Plus realistic move in and make house liveable costs - what needs replacing soon  (cars, TV, computer, phones etc) as well as cost of bare bones decorating  - you may be one boiler repair away from  disaster  if you are not careful, homes are expensive to run.
Look at the moving costs as well, survey etc

Once you have done a detailed retrospective budget you both know where you are and can see if this 58% of income into your mortgage is  doable, what the food, council tax, utilite and kid spending needs to be. You can both then see if your wife needs to get some part time work and you need to mutually agree a budget  on all items and stick to it - YNAB has a one month free trail  and is an amazing budgeting app you both can log in to. 


Personally your numbers scare me, I am a FTB with a larger deposit and average  bigger  monthly income but as I am single  on just my own income I am worried about taking more than a £2k pm (£300-£325k)  mortgage on - having 2 dependants as well  makes it harder, especially a teenager,.

Plus the mention above of pension contributions is super important - you both need to see the real maths and agree to live by them. I think it is too much without an extra income but you may find a way to make it happen  - please dont sign anything withoiu crunching all the numbers