To not want to borrow maximum amount? Mortgage with DP

[LuDa4]

Can I ask for views on this please.

DP and I
Mid 30’s
1DC, not having more
Joint earnings - c.£65k
Joint monthly take home - c.£4200
No other debts or car payments etc
Deposit a c.£150,000

We can borrow up to £380,000 but would look at needing £250k which would mean a monthly Mortgage payment in the region of £1300-1400.

DP thinks we should push ourselves and get as good a house as possible within the budget.

I am more cautious and think we should leave some breathing space and be a bit more cautious.

He says the banks won’t lend us what we can’t afford.

After mortgage/bills, I think we will have around £2000 left each month not accounting for food.

Any thoughts on what we should do?

I think they have softened the criteria for 6 x your salary but that is too high imo

The thing with mortgages is the "house never loses" principle applies.

The housing market isn't great ATM. There's a whole load of instability financially. There's talk of an AI bubble looming.

All you need is some unexpected issue with the house to be in real trouble. We found one of those days after we moved in...

Don't be ten minutes from a crisis.

This, nowhere is lending you nearly 6x your income, whether you have a big deposit or not. We borrowed 4x income and that felt like a real stretch the first few years, I would not have wanted to borrow a penny more.

Lots of people seem to have this idea banks will readily lend 5 or 6x your salary.... That's never really been the case? 4.5x at the absolute max, especially with interest rates not being as low as they used to be.

We bought a house we could easily afford the first time and it was really calming to know either of us could afford it if something happened. Stretched ourselves a bit the second time and then when we had to remortgage it was tighter than I’d like and we had to overhaul our lifestyle a lot. We aren’t sorry exactly but it’s definitely different to have to think about money quite as often as we do.

I think it’s the wrong question though - what can you get that’s liveable for as reasonable a cost as possible? We like our house a lot and it’s the perfect size for us. If we’d spent less we’d have more compromises. So what’s worth it to you and what sort of price is a house that’s ok / good / best? No point spending money just for the sake of it anyway.

@Tarkadaaaahling we were offered 5.5x the last time but I think we did 4 or 4.5x (I can’t quite remember).

I honestly would not take financial advice from the generation above. These are very different times. The boomer generation have had the best and most stable standard of living in human history - that is not being replicated.

My dad told me to imagine my mortgage repayments doubling, and whether I could still afford them.

Agree. My mum was horrified when I shared that our council tax is £320 a month, and said "I've only ever paid £250 a month for my mortgage!!"

I may be naive or unrealistic but I’m not sure how much future growth there is in house prices. It feels as though there’s very little money circulating in the economy relative to previous eras. I think the economy as a whole is in fairly serious trouble.

I would advise having money left to enjoy life a bit - not only for the above reason.

I recently left the industry and that wasn't the case but actually I have just checked and Nationwide are doing 5.5x and 6x for certain buyers. Seems unwise to me!

https://www.nationwide.co.uk/media/news/nationwide-extends-six-times-lending-to-home-movers-and-remortgage

I may be naive or unrealistic but I’m not sure how much future growth there is in house prices. It feels as though there’s very little money circulating in the economy relative to previous eras. I think the economy as a whole is in fairly serious trouble.

I agree, historically so much movement was driven by equity gains so if prices stagnate what drives it.

No one ever has any idea if there will be any kind of crash. I have lived through one as a property owner. But I did not need to sell at the time so it was irrelevant.

It does seem to be men overall who push for bigger houses and cars and I feel it’s an ego and chest puffing exercise.

@KatsPJs I am older Gen X and agree with the generations not being comparable. Our friends who bought early in their careers benefited from lower house prices and that’s the majority of them but some of my friends and relatives who delayed buying it’s a hugely different story. The exact house next door to me doubled in price within 2 years of us moving in.

Graph attached to show just how volatile the market can be, it’s not perfect data but gives an indication

I would be surprised if you could borrow £380k with that income and a dependent. I thought usual maximum for a couple was five times joint income, and then adjust downwards (not sure by how much, I’m certainly no expert) to take into account that you have a dependent. Obviously car loans etc would also be taken into account but you say you don’t have any.

It’s very difficult to know what to do. You need to allow yourself some wiggle room, in case of interest rate increases, unexpected bills, etc.

But, it is sensible to go for the best you can afford. It costs money to move. If you are able to get a place that you would stay in for years by borrowing a bit more, then that’s what you should do.

I didn’t max out and now wishing that I had done, as I’m in a very small place and likely to be here for quite a while longer.

Exactly, my parents made a fortune off right to buy and then made a 40% profit within 6 years on their next house. I absolutely would not take their advice when it comes to finances.

@KatsPJs well take the advice to utilise the right to buy but probably need a time machine for that!

You also need to chuck in the financial stress of death, illness, job loss, unplanned children or caring responsibilities that come out of nowhere.

Some people have to just survive they have zero choice but you have some choice here. You can never ever get back time, honestly life is for living. It’s just far harder financially for younger generations now. No one picks their birth year and our lives are governed by the times we are born in.

I wish I had a time machine when it comes to housing! My parents bought their council house in North London in the early 2000s…I’ll leave you to imagine the price increase!

She must still be paying council tax though surely, so she can’t have escaped notice of how high it has become?

If you have, in addition to your deposit, a year's worth of mortgage payments, do what you like.
If not, ring fence a years worth of mortgage payments out of your deposit money and then do what you want.

I paid 5x more than my next door neighbours bought for, 20 years apart.

@KatsPJs Londoner here too!

I should have not bothered with uni and worked full time in my saturday/holiday shop job. Got one of those interest only/95% mortgages as soon as I turned 18 & bought a flat. By the time I finished uni (2004 ish) prices were completely different.

Whatever your budget I would buy a house in good condition; it costs a small fortune nowadays to do any refurbishment.

I have lived at max borrowing for the last decade and it is super stressful, so I don’t recommend it now.
But I stretched to get the dream house in dream area and it was worth it - until I’ve had to sell it post divorce. Didn’t see that coming.

If you can limit it to the affordability on one salary that’s ideal but appreciate that isn’t easy.

My parents pay less CT than me although their house is worth more than double 😆

It depends how risk averse you are.
We borrowed much less than we were able to because I wanted to cater for some of the foreseeable "what if" scenarios (interest rates rise; one of us loses a job and has to take a lesser well paid one; illness or disability meaning one of us had to reduce hours).

Occasionally I think it would have been nicer to have had a better house.
But having a lower mortgage payment meant we could overpay and therefore paid off the mortgage more quickly. We were then in a position to make savings for our children for uni/house deposits etc. I think this is more worthwhile than having a bigger house.