We are trying to work out what is reasonable and have come up with a figure that is max 1/3 of combined salary. We can borrow more but don't want to. We obviously could borrow less but have moved to a stupidly expensive area and this is supposed to be our final move so want to get it right. We have accident/sickness/unemployment insurance and life insurance.
I would think not just as a % of current income, but also how that may change with various levels of interest rate increase and income.
I'd look at various scenarios, ranging from best case (you both get sizeable pay rises and interest rates stay low for the foreseeable) to worst (decrease in combined salary and substantial interest rate rises). While unemployment insurance helps to allay some fears, there may be things like one of you taking time out to become a stay at home parent, or wanting a career change, that might mean a future decrease in income for a while. Obviously the most realistic scenario will likely be somewhere in the middle, but it helps to have a range in mind so you can feel comfortable with your decision.
Our mortgage is quite big - approx 1600 a month and just short of a third of our combined income. Ideally we would like to be able to cope if one of us were out of work but we would really struggle TBH.
Obviously it depends how much your income is. If you takes home 10,000 a month, then spending half on the mortgage still leaves a sizable chunk to live on. If it's more like 3000, then I'd say a mortgage payment of half is too much. So it's relative.
We also spend about 25% on childcare - 1400 a month. Something to factor in when thinking about the future. A few years ago we had never thought about that cost and certainly didn't realise it would be as high!
I would say less than 1/3 if you may have childcare to pay for. Childcare fees can be like having another mortgage. We haven't got long left on our mortgage but I've always tried to split our income 3 ways since we stopped paying so much childcare (we used to pay £800 a month for childcare, now pay less than £50). 1/3 bills (mortgage, council tax, water etc.) 1/3 savings (which, again, can be split numerous ways say holidays, emergency fund, car costs) 1/3 every day spends (for weekly food costs, diesel for 2 cars, pocket money).
Ours was around 20% before we had DC. Now I'm part time so it's more like a third, plus we have childcare costs too, so can't overpay as much as we would like. Our main consideration when taking it out was could we afford it on one salary if we needed to?
I worked for a mortgage company (pre recession) and for most products we underwrote the affordability calculator was worried at as the monthly payment could not be more that 40% of salary and monthly outgoing which appeared on your credit file and new mortgage payment could not be more than 70% of monthly salary
This was 10 years ago so no idea if this is still the case
I would also have a think about if one of you lost your jobs. My fiance and I earn roughly the same, so our mortgage is not only 1/4 of our income, but about 1/2 of our income if one of us lost our jobs.
(so apr. £4k income, £1k mortgage, £2k each, so we each put £1k into the joint account each month)
I wouldn't feel secure unless I had six months expenditure saved (or building towards) plus one of us able to pay the whole cost of the mortgage alone.
Yazoop - yes we have done those calculations. When we first bought a house (in 1997) we had a fixed rate of 7.1%. This was not long after interest rates were 15%. There is a reasonable buffer as long as both of us of working.
Childcare is approx. 1k per month. No more children!
If I got made redundant I would get a big pay off as I've been there 17 years. DH was out of work for 18 months recently and we managed using my salary, some savings and the unemployment insurance. It is always in the back of my mind that he can be made redundant again, hence I am being wary. He earns significantly more than me. However, his wages are likely to go up a few k per year and he will be in line for bonuses. We are also likely to inherit from elderly parents (although clearly not guaranteed and so not factoring that into any calculations).
We are also going to overpay so that we have a buffer there as well in case of future job losses although the intention is to pay it off the mortgage as quickly as possible.
Buying a house is always a gamble and we have gambled in the past and it has paid off (SE house prices being what they are). I guess we could always sell up if it got really desperate.
I’ve just worked out ours is approx 25% of household income but we are in the process of separating. We also have full time childcare costs of approximately £1k per month. Life is so expensive at the moment. Luckily I’m able to go back to work full time and can cover the mortgage. The plan is to sell up in a few years and hopefully with the equity I can get a smaller place with a much smaller mortgage.