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.

Ours is 24% and we have various things on credit and loans at the moment because we've just finished a big renovation. In two years most of that will be cleared and we should also be on a better mortgage rate as well, so I'm hoping it will be sub-20% at that point.

Only you can decide what you can afford. We manage ours fine and if rates go up sharply we've got contingency room as there is quite a bit of disposable income spending that we could cut back.

What are schools like? What’s the catchment area?

Mine is 30% of my take home pay, and it’s absolutely fine in our case. We have no debts and no childcare costs though. I think the answer depends on your outgoings, based on what they are likely to be if you have DC. Once you start factoring in childcare, extracurricular activities, school trips etc it may be different. Plus don’t forget the possibility of higher rates/council tax in a more expensive property.

It's not just about the percentage though as the amount leftover is obviously a lot more on a higher salary, so you can be comfortable on a lower percentage leftover IYSWIM.

You might struggle with a mortgage payment of £200 if your income is £1000 pm, but manage quite comfortably on a mortgage payment of £1000 if your income is £3000 per month, even though the percentage is much higher, because you have a lot more leftover and your fixed essential costs are not necessarily much higher - food, utilities etc, especially as you are actually moving to a smaller house, so your utilities might be less for example.

I'd forget about the percentages, apart from obviously making sure that you qualify for the mortgage and then focus on working out the budget and making the best of your available money.

A good start is probably having a look at the moneysavingexpert money makeover and doing everything that is relevant to you.

www.moneysavingexpert.com/family/money-help/

Mine is 24% of mine and DP's take home pay. It was very scary when we took it out and it still worries me seeing that much leave my bank account each month but it has enabled us to have a nicer house than we had before and we made sure that both of us could afford to solely pay if the other lost their job before we signed up.

It might be better to look at whether you can afford the mortgage/bills/living costs if your DP were to lose their job or vice versa, if interest rates were to go up or if you decide to have children in the future rather than the % of your take home pay. Our mortgage advisor did this with us as the % of take home pay can differ wildly (someone on £200k who pays 40% of their take home pay a month into their mortgage is very different from someone on £30k who pays 24%). I know that there are a lot of 'what ifs' in that scenario and it really is planning for the worst case situation, however it may make you feel more comfortable with your decision.

I was dawdling with my reply so much that barbaraofseville posted a very helpful response whilst I was typing - absolutely agree with what they said and if I had seen that before I would have agreed rather than basically type the same message out!

My only addition to Barbara's post is to specifically consider childcare costs if you're planning a family.

Firstly you may have a period/periods if you have more than 1 child where you dont earn anything (if you take extended maternity leave) and then you'll have childcare costs. Even on 3 days a week, depending on where you live, its expensive (i was paying nearly £900 a month for 1 child for 3 days a week 5 years ago).

Throw a curveball into the equation (eg twins / disability / illness) and your financial situation can change very quickly.

Ours is currently 31%, but was much higher when we first bought.

We took out a mortgage of 319k on a salary of 75k, so similar figures to you but stretching ourselves more than you would be. We never struggled, always managed to save and overpay the mortgage.

I know you have no plans yet for children but as pps suggested it would be worth considering finances if you had childcare to pay for. We cope fine with one child in childcare but we'd like another and the only reason we could afford childcare for a second is because my wages have gone up by 12k since we bought.

I think I'd look at it in terms of, if one of you got made redundant or couldn't work for reason would you be able to pay the mortgage (just about)? Because these things can happen any time so I don't like to think I'd be immediately in the shit if something went wrong. But I am quite risk adverse so others might say borrow more, depends how much it stresses you out.

We could cover the mortgage and essential outgoings on one wage if we really had to, though obviously it’d be a struggle we could manage in the short term. Thankfully we wouldn’t need to pay for regular child care as DM and MIL have always said they will cover our working days, however, I appreciate we will need to factor in times where one might be on holiday, not able to look after DC.

Personally, as you don't need to move yet I would keep overpaying like mad and increase equity, then when you are through the worst of childcare cost (when future dc is 2.5) move. Unless house prices are increasing or your current area is particularly sensitive to price drops whilst your dream property would likely retain value.

It's impossible to say.

If your take home pay is £5k per month then 50% or more might well be very affordable.

If your take home pay is £1000 per month then 20% might be impossible.

are these percentages of one salary or two? I ask because if I were to pay the mortgage alone, mine would be 42% of my salary.

But split 50/50 with DP, my share amounts to 21%.

Sorry! Missed the end of your post where you stated your income.

It doesn't sound too bad to me.

You mention that it would be 31% if you went part-time? You don't need to go part-time so not sure of the relevance of that, any more than thinking about how you'd pay it if you lost your job.

I know this is slightly off topic but having read your update, i think you'd be very unwise to plan your finances on the basis that you'd never have routine childcare costs, relying on parents to provide this.

Our mortgage payment is £565 a month which is just under 20% of what we take home each month. Husband is full time and I'm part time. We borrowed £150k 5 years a go, paid £28k ourselves. First 2 years we paid £745 a month, second 2 years was £595 a month and we signed a new deal last year paying £565 a month. I feel it's very affordable. Our disposable income (after food and all bills) is around £700 a month. This will improve once we don't have playgroup bills from next year and we pay off a loan we took to get a new kitchen and do some other home improvements. I can't say we save very much at the moment but we have more coming in than we have going out and can afford days out, a holiday each year and to get everything we need for our son so I don't worry.

Affordable is basically what you are comfortable with

We work on total income split in 3rds, so, all bills (mortgage, gas, elec, water, car repayment etc) being a 3rd of our combined full time income, so that when we're in a situation like we're in now (me on maternity leave bringing home only stat pay at present) we aren't struggling for money. Also means normally we have 1 3rd for fuel, food shop and "fun money" and 1 3rd for savings. Obviously this could change depending on what I do upon return to work.