Comfortable mortgage payments - 1/3 of net wage?

Ike1

Hi -

Just wondering - what ratio of net income is recommended when taking on a mortgage? Is up to 1/3 of a net wage the most sensible option?

I'm asking because I've just had a 'play about' with the HSBC and A+L mortgage calculators for borrowing. To be fair, I have quite a large deposit but I was surprised that both calculators gave a lending/repayment rate at 2/3's of my net salary.

This seems crazy to me! I thought that 'silly' mortgage offers were meant to be more difficult to get these days!

Ike

Ian_Griffiths_Halifax

You do right to question the figures. Getting a mortgage of 2/3rds of your net income is just asking for trouble in my opinion.

If you are single, I would normally expect the mortgage to be affordable at 40% of Net Pay (take-home). However, I'd also make allowances for other finance such as car loans, credit cards etc to come out of a maximum total of 50% of Net Pay. This doesn't work for everybody of course, and some people may be happy to sacrifice having no social life whatsoever in order to afford the property due to prices being high in their area. However, as you say you have a large deposit, I would assume that you have no debt.

If you are looking at budgeting before you buy a house, I would recommend you look at a Fixed Rate so that you know that it will remain affordable and within your budget. A Capped Rate (one where there is a ceiling on the maximum interest rate you would pay) could be considered if there are any around, but without checking, I couldn't tell you whether there are or not just now.

Ian now sits back and waits for all the "make sure you go to a Whole of Market, Independent, Non-Fee Charging Broker or go direct to lender" comments ZZZZZZZZZZZZZZZZZZZZZZZZZZZ

beecher

I think it depends on the level of your pay too - if your pay is relatively low then even putting 1/3 of your salary towards a mortgage might be too much as there won't be much left over once you pay all the other essential bills. Those with a higher pay have a bit more freedom and they'll have 'extra' money which doesn't have to go on essentials and can choose to put it towards a mortgage. Many don't have that luxury - my mortgage is 25% of take home pay and I find that a lot.

Dan_Collins_2

I think if everybody stuck to your way of thinking we would not have half the trouble we have now!

But hey, trying telling that to some plumb whos wife has just chewed his ear off to buy the new house they cant afford, it dont go down well!!

Also make sure you find a broker who is not whole of market and will take you to the cleaners as they only use 2 lenders and charge 5% of the loan as a fee. or go direct to a lender that is just about to pop so service is poor and your offer is rejected the day before you exchange contracts!!

There you go Ian, a new angle for you! LOL :T

:rotfl:

janken

Agree totaly with beecher. (depends what your wage is)I would use one of the many budget calculators - you can find them in this site and see what your outgoings are at the moment and what you have left. If you are renting deduct that but keep ALL your other expences. 1/3 of net seems high to me but i know that, to get on the property ladder, you may need to go this high.

Finally is this the time to buy? IMO you may be as well saving for a year or so and build a higher deposit-It'l make the mortgage easier to get and perhaps a better rate? The more i read of the credit crunch it seems likley that the house prices may drop a bit yet

Good luck

Wutang_2

I would suggest two things:

1.) make sure you go to a Whole of Market, Independent, Non-Fee Charging Broker or go direct to lender

2.) never trust anyone who refers to themselves in the third person

sarah_elton

When I took out my mortgage on my flat (Jan 06) it was about 40% of my net, and things were tight but do-able. I was bunging £200/month on student credit card debt repayment back then too. Now with salary increases in the last couple of years it's 25%, my debts are paid off and I finally have plenty of cash left over each month. And in July my student loan will be repaid giving me even more.

It does depend on your salary because all the other costs - council tax, electricity, water etc etc are fixed (roughly per number of bedrooms) and not a proportion. Their impact is very different if you're earning £15k compared to £50k (taking the same property).

Leasehold v freehold makes a difference too - if you're paying ground rent/service charge on a leasehold this can be another significant cost on a typical FTB salary. As per my example, consumer debts or student loan repayments make a difference.

Search the forum because there have been plenty of threads with people looking for bill costs on various sizes of house. Use these to draw up a monthly budget. That's the best approach.

In general though no, I wouldn't commit to 2/3. It's ridiculous that if you have a big deposit you can borrow a mortgage large enough to take 2/3 or even more of your net wage. Even if you can afford to put down a big deposit, the monthly running costs need to be sensible!

Kez100

Most we had was 33% on our first home when interest rates were circa 13%. Do able but life was more fun when the rates dropped (and luckily kept on dropping)! Once it got to 25% we left our payments there and overpaid (partly because we are swotty Peter Perfect and partly due to naff endowment red letters starting to arrive).

Ike1

Hi -

Glad it's not only me that thinks 2/3's net income for mortgage repayments is mad!

1/3 of my net income would be do-able fairly comfortably (no debts, no car).

I'm not actually looking to buy at the moment (waiting for house prices to bottom out!), I was just curious to see what I'd be able to borrow in the current economic climate. Seems to me like the banks haven't yet learnt their lesson...

Ike

Ian_Griffiths_Halifax

Dan_Collins wrote: »

Also make sure you find a broker who is not whole of market and will take you to the cleaners as they only use 2 lenders and charge 5% of the loan as a fee. or go direct to a lender that is just about to pop so service is poor and your offer is rejected the day before you exchange contracts!!

There you go Ian, a new angle for you! LOL :T

:rotfl:

:doh: I didn't mean don't go to them, I'm just fed up of all the people who think that charging a fee is criminal. Whole of Market is good, but some get confused with Whole of Market and Independent. You can be Independent but not Whole of Market, which is just stupid and misleading! Then you regularly get people recommending going direct to shave .1% off the rate but save £500 lenders arrangement fee and then get shafted as you describe, rather than using a broker who can keep pressure on the lender to get it offered speedily.

It appears that I am just not good at humour :rotfl: :silenced: