Affordability criteria - declined, help please

Gambit

kunekune wrote: »

That's quite a sensible rule of thumb, Gambit, though it also depends on the size of the income I would imagine. Where someone has a very low income, 30% is probably the most they should spend, and if it is high, then there might be enough 'spare' in there to make 40% a safe bet. You may think you can spend 50% of your income (or that you need to in order to afford a house), but it leaves you scarily exposed. What if the car breaks down? Or the roof needs emergency repairs? You can't insure against all risks, so it pays to be conservative when making long-term financial commitments.

Thats good advice Kunekune! I dont want to stretch myself too far but at the same time I want to afford a nice place in London and this normally means stretching yourself a bit more then you would like!

Do lenders use this 30-40% rule of thumb though? As when I went to see a mortgage broker last week he didnt say anything about thinking we were spending too much of our monthly income or that any lenders would see it as a problem...

homer_j_3

The % that I give are for averages - you will find situations where people spend more than this on their mortgage and some people will spend less.

The key here is what you can afford and how well you can cope with interest rates and what sort of deposit you are putting down.

Clearly London property is expensive and living costs are too. You need to ensure that the mortgage is affordable now and in the future. There is absolutely no point in it being affordable for the next 3-5 years if interest rates have increased and your payments after this point are unaffordable.

Whilst interest rates remain stable at the moment, I would do the mortgage payment and 7,8,9,10% and see where you start to get a bit nervous. Depending on your lender, the Standard Variable Rate is likely to be around the 7%-8% mark now.

Gambit

Thanks homer_j. That's a good idea about working out what the mortgage payments would be at higher interest rates and work out if we could still afford them then. That way any surplus that we have for the first 3 years at a fixed rate we can put towards overpayment thus increasing the amount of equity that we have in the property. We are only putting a 10% deposit but plan to overpay for the first few years to increase our share of the flat.

I'm seeing another mortgage broker today so hopefully armed with this info I can create a realistic budget and take that along with me to see what they think...