Is mortgage and council tax at 42% of income too high?

UndergroundSaxClub

Hi all.

Bit of a complicated one (for me anyway). Currently have my own mortgaged flat and looking to purchase a house with my partner who is currently renting. We have found a house that ticks every box. However, the price and percentages on my end are concerning me.

Currently my mortgage and council tax are 17% of my monthly paycheck. I managed to achieve this percentage by saving and then overpaying the maximum annual amount, having a snowball effect, so the jump to an unavoidable 42% before utilities, food etc is alarming. My partner earns more than me, and our estimations are around 28% of her paycheck will go towards these.

The deposit for the house would come from the sale of my flat which would provide me individually with some savings. However, my capacity to save would be greatly reduced and overpayments impossible in the new house. I appreciate a new job could help with the costs here, although we are currently under a recruitment freeze and voluntary severance scheme like many others in this sector, so this may not be for some time.

Appreciate this is a rather scattered post. Happy to provide actual numbers if needed. I guess my question is, am I crazy spending that much on the mortgage/council tax before utilities just because I have fallen in love with a house.

Brie

Has someone agreed to a mortgage for you at this level?  It does seem dreadfully high to me.

Presumably your partner will be paying for things as well???

MWT

UndergroundSaxClub said:

My partner earns more than me, and our estimations are around 28% of her paycheck will go towards these.

The deposit for the house would come from the sale of my flat which would provide me individually with some savings.

Have you allowed for the share of the house that you are purchasing with the deposit when calculating how much of the monthly payment you will be paying, or are you just splitting the monthly cost 50/50?

... or are you both contributing the same amount towards the deposit..?

UndergroundSaxClub

Thanks for the reply, admittedly this is going on the mortgage calculators online from comparison sites and a few banks (Nationwide, Natwest) etc. With our combined salaries most lenders will offer £270,000 with the house price of £265,000 and I have £45,000 equity in a flat valued at £80,000 which would be the deposit

Partner and I do plan to split things 50/50, although we'll need something in writing at the bulk (all) of the deposit would be coming from me.

UndergroundSaxClub

MWT said:

UndergroundSaxClub said:

My partner earns more than me, and our estimations are around 28% of her paycheck will go towards these.

The deposit for the house would come from the sale of my flat which would provide me individually with some savings.

Have you allowed for the share of the house that you are purchasing with the deposit when calculating how much of the monthly payment you will be paying, or are you just splitting the monthly cost 50/50?

... or are you both contributing the same amount towards the deposit..?

Apologies didn't see this before my last post. We are planning things 50/50, however if I were to pay less monthly due to my deposit that would probably be better for me at least. I'm unsure how to correctly factor this in to find my new monthly payment.

ACG

Can I just clarify...
Are you going from 17% sole income to 42% sole income or 48% or 28% combined income? 

UndergroundSaxClub

17% to 42% is my sole income. From my own flat at the moment to my half of mortgage/council tax on the new property.

Managed to find a calculator for adjusted monthly contributions if the deposit is not to be repaid via a Deed of Trust which takes me to 31% and my partner to 46% from our own pay. If using a deed of trust instead it is 42% and 33.5% respectively.

housebuyer143

42% would make me very uncomfortable tbh. Council tax is only going to go one way as well. 31% is better as once you pay utilities and food you won't have much left to enjoy yourself with 42% just CT and mortgage. 

MWT

UndergroundSaxClub said:

Managed to find a calculator for adjusted monthly contributions if the deposit is not to be repaid via a Deed of Trust which takes me to 31% and my partner to 46% from our own pay. If using a deed of trust instead it is 42% and 33.5% respectively.

Not sure I'm quite following your comment about not having the deposit repaid...

If you are providing the entire deposit, let's say it is 20%, then on purchase you already own 20% of the house and the mortgage owns 80%.

Over time your partner is going to need to pay 5/8ths of the mortgage each month to buy her half of the property, you will be paying 3/8ths of the mortgage to buy the remaining 30% for your half.

You will still want to have a deed of trust in place to reflect those facts so at any point if you were to sell and go your own separate ways, you would be due 20% of the sale price + 3/8ths of the residue after clearing the mortgage. (assuming positive equity)

New_in_the_fens

I’m not clear how much you are expecting to pay individually. I’ve always taken the view the ‘share’ of bills is split based on salary. 

Let’s say one earns £3k per month and one earns 2k per month and the fixed costs (mortgage, CT, utilities etc) are £2k then the higher earner pays 60% of the costs (£1200), with 40% (£800) payable by the other. This allows each to contribute based on their means and equitably. Review yearly to accommodate pay rises, costs increase etc. It’s not perfect, but has a basis in fairness and paid into a joint ‘bills’ account makes it easy to manage. 

You could then have a formal agreement on the fact you are paying the deposit and agree how any increase in equity should be handled in the event of a split. 

But fundamentally, both of you need to agree something that works for you both and neither of you feel resentful of the other or the financial situation. 

Keep_pedalling

You need to protect your deposit by having a deed of trust drawn up to show the uneven ownership. Your conveyance solicitor can do this for you.