Mortgage - what is too much?!

[NCTodayy]

Current mortgage repayment is 15% of our monthly take home pay. Plenty of money for luxuries but also we add a fair amount in to savings each month and overpay our mortgage. We love the house, it’s large with 4 bedrooms so technically perfect for if/when we start a family. The only issue is the area which isn’t great.

A property came up in our dream location (v desirable area and road so prices high) and we’ve just had offer accepted. It’s a small 3 bed and mortgage repayments would increase to 25% of our monthly take home pay. We are in the early stages at the moment having just had the offer accepted and also not long accepted an offer on our property.

I’m starting to get very anxious about affordability and whether we are going too big too soon. We’d be borrowing an extra £100k bringing us up to a £270k mortgage, which feels scary. Though DH and I have no set plans for DC at the moment, in the future if I reduced to part time hours our repayments could go up to around 31% of our take home monthly pay. That’s not taking in to account interest rates increasing after our fixed term too. For context, our combined earnings are 73k a year.

AIBU to be getting really anxious about taking on a mortgage of this size? We have no money worries at the moment and would hate to take the leap and regret it but at the same time maybe I’m getting cold feet needlessly. I’d be interested to know what percentage of earnings others spend on rent/mortgage and how they manage. DH thinks I’m being too cautious. TIA.

Anyone?

It depends on your other outgoings- any loans, credit cards, cars, food, phones etc. How would you manage on maternity pay?, so you have enough savings to cover if either lost your job? etc. Our mortgage is just over 30% of take home pay- I’m a stay at home mum so that’s just of husbands salary. We run 2 cars, put a bit in savings each month and live relatively comfortably but don’t have a huge number of luxuries (foreign holidays, expensive clothes etc).

Mine is 22% ish of my income, someone on another thread said the banks have a 28% affordability rule. Not heard that before but it makes sense. I’d be nervous going much higher without knowing future interest rate rises.

My mortgage is about a third of my household income, leaving £1600 for bills, food, savings and spends. It's fine.

It depends on other outgoings but we don't spend much and have no debt so the ratios aren't a problem.

31% of your take-home pay isn't too much in my opinion, but I'm used to London prices where very few can decide to have such a low mortgage when they're starting out. Did you check that the primary schools are good in the area? What's the plan if your DH lost his job while you were on maternity leave, is it quite easy for him to pick something else up or for you to while he stays home? Can and will you make some overpayments to keep as a buffer?

back in the 90s mine went up to 72% of take home. That was fun...

Only you know what is doable - what other debt, regular outgoings, fun money etc... is needed.

If I were starting again I'd keep it under about 40% - so probably around 35% to allow for interest rate fluctuations - because that is what I can afford without having to give up on the fun (holidays, eating out, cinema) in our life.

Martin Lewis says theres little point in savings when you have a mortgage to pay off cos what you earn in savings is lost on your mortgage interest. Me and DH are ploughing what we have into our mortgage in the hope of paying off early then focus on savings. We consider anything going into the house as savings anyway as we can still access it if needed but it driving our payback time and annual interest down meaning more of the capital is being wiped out.

Could you live on one wage? Would you keep the savings in place after the house purchase. Could you save most of the second wage and then over pay on the mortgage to reduce the monthly payments.

Dream houses don’t come up often, go for it, as a pp has said check the ofsted for the school.

I don’t think that’s too bad. If you can make overpayments too you could reduce the monthly payment in a few years.

Mine is 16% if you take things like child maintenance and tax credits into account.
If it’s just on my wage it’s more like 20%.

Only you can answer this. Everyone's attitude to money/risk differs.

Surely the other issue is a small 3 bed house versus your big 4 bed. If you do decide to have a family, the new house is potentially going to be too small quickly and then another move is on the cards.

Whilst I agree totally in the LLL mantra, are your really ready to downsize for that at this stage in your lives?

My mortgage is not from the UK but from another EU country (one which saw relatively little impact from the 2008 financial crash which may suggest their lending policies are sound). The rule there is a maximum of 30% of take home wage can go on rent / mortgage. The banks also investigate what financial obligations you have - bills and council tax equivalent etc - to ensure you have wiggle room.
One caveat is that all mortgages are fixed rate for the full term.
I think as long as you have a plan in case of interest rate hikes, cutting back on things, you returning full time, then it sounds perfectly doable.

As others have said it really depends on other outgoings, and if it’s a slightly better area are things like Council Tax going to be higher, will your commute change etc?
Without knowing more details, is it possible to extend your term/keep monthly payments roughly the same as you are paying now, and continue to make overpayments? That was you can stop those if you wanted or needed to if you went on mat leave, but aren’t tying yourself in to bigger mortgage payments that you might feel anxious about?

I'm about to take on a mortgage at about 32% of take home. I'm apprehensive but in my case I'm buying my ex out so not much choice.

31% of take home after children should be doable. Is that based on you working part time or stopping work?

Ours is about 25% of our take home pay. Rent on the other hand was would be closer to 50% on a similar house. It's a no brainer for us.

Thanks everyone.

@Toomanycats99 the 31% is based on me dropping down to part time hours (22 hrs pw).

We don’t have debts, no car finance etc. House is the same council tax band as our current property and no additional costs in travelling as it’s slightly closer to work. I think I’m just panicking as we are used to living comfortably and borrowing an extra £100k is scary.

I think go for it, you are financially comfortable (no debts etc) so enjoy it, plough money into it and think about saving properly later. That’s what we have done and it’s been totally worth it.

Mine is around 40% I’m single and manage ok

If you do have children remember that childcare will be the other big expense alongside your mortgage...

It sounds doable to me, and I’d rather have a 3 bed in a good area than a 4 bed somewhere unpleasant- location really is the most important thing. So long as the 3 bed has decent sized rooms so you’re not going to feel too cramped, I honestly can’t see how having an extra bedroom will make a huge difference ( as long as you’re not planning on a massive family!)

But childcare is the thing to think about because it’ll increase your outgoings massively for a short period

Ours is around 25% slightly higher amounts than yours but not much, I've just been on mat leave and found that savings of £5-6000 covered it easily (I'm the higher earner do we took a real hit). Pre DC we saved at least £1000 a month, holidayed at least 3 times a year, one long haul one Europe/morroco etc I've or two city breaks, we socialised and went out regularly. We live within commutable distance of London so things are not cheap. We only ever have cars we can afford, no debt, no HP for anything else though, so if we need to tighten our belts add we have while I'm on mat leave it comes out of luxuries we're not struggling to pay off debt. We live comfortably. In the last five years we've also spent £25k plus on host renovations and £18k on our wedding without accruing debt. You'll be absolutely fine!

Also after you have children look at consolidated hours, both DH and I have consolidated full time over 4 days, giving us a day each during the week to look after DS, meaning only 3 days of childcare needed but two full time salaries coming in. We will still be saving a good amount a month, holidays abroad twice a year with DS , not as much going out to eat, drinking and spontaneous city breaks though, although those things stop when you have a baby anyway.

We pay 24% of our joint income 😬 It does seem like a lot but there’s always variables. For example, we have a £15k loan. DH pays £279 maintenance plus £120pcm in petrol to see his kids per month. I, on the other hand, get zilch from my son’s dad who refuses point blank to pay 🤦‍♀️. It’s so difficult to say that percentages On a screen don’t mean much unless you have the full picture.

I read recently, that as a rule of thumb, you mortgage should be about 28% of your take home pay.

28% rule

The ratios are not the key thing. The key thing is the absolute amount of money left for other things. So someone with a massive income could have 50% going on mortgage and the remaining 50% of a very large figure is still far more than most people with zero mortgage have.

So yes, consider all the outgoings and how income could change over time and what you would need and have in each scenario and work it out, plus some for contingency.

It is true that generating large scale savings whilst having a big mortgage isn't the best use of the money but you always need a decent chunk of contingency savings for things like a new car or boiler, if you aren't wanting to use credit for these.

You sound pretty sensible and reasoned about it and as if you're not living on credit, so it's probably doable.

Whatever mortgage you get, the ideal is to overpay wherever possible. You might be upsizing now, but aiming for the joy of having paid of early and all the extra flexibilities that can give you is a good aim.