How much does monthly expenditure matter: Mortgage?

[Redling]

We are just in the process of applying for a mortgage for the first time. Affordability test is fine, we currently pay £725pm rent and save £750pm into an ISA and have applied for a mortgage with £961pm repayments over 30 years. We have just been sent the form to do breakdown of monthly costs. We save a lot a month but also we like to eat out a lot. Even with 5 month DS we have a nice lunch out all together every weekend. Also we get maybe one takeaway a week, usually a Sunday night laziness! I am feeling really worried about is seeming profligate by eating out and having takeaways so much, and I'm scared after hearing stories of how tight mortgage lenders have to be now. But if we save £750 a month, does that offset what we spend the rest on, as clearly we have a lot of slack in our finances? How important is what ou spend your money on, what do they 'judge' you on?! I'm being crazily panicky because we had the offer accepted, it was under budget and we really really can afford it, but I'm just terrified of being turned down. Also our two months of bank statements, we both went into (planned) overdraft facility in Jan as we got paid on the 24th Dec, long month, christmas expenses etc etc. Back out now after Jan pay. We don't have credit cards. Will this affect it?

With that level of saving a month I wouldn't expect you to have a problem assuming you have the right level of deposit.

Also different lenders will have different criteria so if you did get turned down by one then try someone different! Are you using a mortgage broker or finding a deal yourself?

We are using a mortgage broker. He said the best deal lender was a 'bit tight'. But yes, there are plenty of lenders out there. It's just I feel scrutinised and judged and terribly nervous of it going wrong! Probably because we used to just spend up every month and be quite crap with saving until I got pregnant and then we really wanted a house, and finally we have one within grasp I still feel like we aren't the best with money! Also don't like that we went into our overdrafts last month but we still saved. We just saw the best house and went for it, but obviously December spending is a lot more than usual so worry about the bank statements they look at will not be representative of our usual spending!

And we have the 10% deposit. More than that actually but we are going with 10% as the extra we have would ony reduce the monthly payments by £4.50pm, and we can put that away for possible extension plans.

I used a broker who guided me. He asked what we spend on clothing, socialising etc & I said about £500 for the family. He readjusted to £150.

Silly really, you spend what's left after bills and savings. Your commitments go up, you eat out less. They'll see it on your bank statement too.

Just one thing... your repayments are only fixed for as long as the fixed rate deal lasts. So not 30 years.

I think you'll be fine. We applied for our mortgage just after the tighter rules came in and I was terrified. We had to submit six months' bank statements and within that time we'd had a silly month where we'd spent a lot on pretty much nothing, and just before Christmas we'd gone slightly overdrawn.

We still got the mortgage.

I think there's a lot of scaremongering about tbh. As long as you have proof of the deposit, and you can clearly manage the repayments, the rest doesn't matter so much. The new affordability checks are just to make sure you can afford it and that you aren't spending, say, a grand a month on childcare that you haven't declared.

The mortgage we are applying for is fixed rate for 5 years. I suppose with the savings we have (which were for the deposit, but we want to keep a smaller level of saving) and our rent mean we already have the mortgage payments covered, so even if we spent the rest on whatever it shouldn't matter. But God this is stressful!

It's horrible isn't it you just have no idea what to expect! But fingers crossed for you, I'm sure you'll be fine.

A few lenders use the ONS figures as a guide for family expenditure.
As guide household expenditure should include travel costs, household bills (including shopping), holidays, socialising and eating out. Child care is classed as non regular expenditure but will still be included.
Rent/current mortgage payments are not included in the calculation as these will not continue after completion.
Moneysupermarket used to have an expenditure calculator so that could give u an idea of your expenditure.

One last thing to point out is that your affordability will be calculated on the banks stress rate (between 6 & 7%) not the mortgage interest rate you have selected.

Not a lot of banks would consider savings as a mean of maintaining mortgage payments

I don't mean we have savings to cover the mortgage payments, I mean the fact we can consistently afford to put £750pm into savings plus pay £725pm rent should, I hope, mean that regardless of our outgoings after that we will be accepted as having the income to cover a £961pm mortgage repayment. The savings we have are the deposit plus extra to cover fees and moving expenses etc.

you need to look at building up six months AT LEAST of all your expenses as savings, in case of job loss etc.

going into overdraft because of sparkly-tat-mas shows a worrying attitude to finance. You are now in a position where you could lose your house if you don't pay. Time to prioritise.

My question was about the mortgage application process, not whether or not you think we can afford a mortgage, as the Mortgage Advisor knows we can. But it's interesting that you think a person who saves more than their rent every month is irresponsible with money! Using a planned overdraft facility when you still put £750 into savings isn't terribly irresponsible, as I said we don't use credit cards.

Our lender was very relaxed. They asked how we felt we could afford the mortgage. We explained that after taking on a larger mortgage and living our present lifestyle (which we were willing to cut back on) we would have approx. £200 left a month. We then said if mortgage rates went up, we'd be willing to cut back or use the £200 spare we had a month. That was it, they didn't look at any calculations.

As a backup, you need to have a good reason why you used your overdraft limit (perhaps one last splurge before taking on a mortgage, which you felt in control of as you have a good amount left over each month for example).

Yes, in hindsight perhaps it would have been better to not put the full £725 monthly savings in ISA in Jan as it was clearly going to be a tight month. But I hope it would be clear that we just had the money in another account rather than spending money we don't have at all. With no other debt at all or potential for other debt (no car finance, credit cards) I'm fairly optimistic a couple of hundred in a planned overdraft for a week won't screw it up!

I don't understand how your broker can be confident on your affordability when they haven't even completed your expenditure.
I work for a high street lender and applicants expenditure is a big part of our affordability check.
Also as pp mentioned, having a good reason for being in you overdraft will probably be requested as your account conduct will also be reviewed to ensure that you are a good risk to the bank

based on our deposit, earnings and length of mortgage we are going for he said it seems affordable but as I mentioned we are just doing the breakdown. As I have pointed out many times I feel as our rent and savings every month total £1,475 BEFORE our expenditure on anything else we can very much afford a monthly mortgage payment of £961. As I said I am at the very start of this process and was looking for advice. But now I feel like quite the chancing povvy bastard :)

Actually coming back to the overdraft thing, how does a bank view a planned overdraft that is occasional used against for example a credit card? In my case I was advised by my bank to keep an overdraft facility of a certain amount on my account, so my assumption was that it therefore would expect someone would occasionally use it without that being held against them? What is seen as worse, a credit card bill that is payed off gradually or an overdraft facility used occasionally?

I'm sorry if any of things I have said have offended you but I work as a mortgage underwriter and these are the things that we look at and assess for affordability.
I wouldn't be looking at your level of savings but what you are spending day to day.

I understand that your broker is saying that you can afford a mortgage payment of £961 per month but is this based on your selected interest rate or the banks stress rate?

In regards to your overdraft, if it seems reasonable then it shouldn't be an issue. Credit cards are not looked at unfavourably but used to assess your commitments. The less u have, the better.

No, not offended. It's just when you've saved and finally have a good wage and pick a house within your means that you know you can afford, and have no debt etc it's a worry to think you still might re regarded as a financial liability! I'm probably feeling a bit snippy about being berated like a child and being told my priorities were wrong further up thread :) anyway, we are talking further with MA today so onwards we go.

The lender will have specific outgoings they need to take into account for affordability, ie regular outgoings such as childcare, commuting etc, plus of course household bills (but these are usually assumed based on household size).
When the affordability checks were done by your adviser these should have already been asked for.

Anything else, like eating out and holidays etc, won't necessarily be used for affordability, but more likely to help build a picture of your lifestyle, in order to recommend which mortgage is the right one for you (all advisers are now required to recommend a mortgage package based on questioning about your personal circumstances.)

Don't get too hung up on those variable outgoings. The main reason they ask to see bank statements is to make sure your not paying £1000 per month on nursery or child maintenance that you haven't declared.

Ps, I am a mortgage adviser for one of the "stricter" lenders so I do know what I'm talking about

We've just been approved for a remortgage.. Our three months bank statements show us going £500 into overdraft for a few days in December (Xmas spending plus saw a good price on flights so made the decision to use planned overdraft for the few days). It wasn't a problem for us, this was with halifax.

Approved! Whoop! I'm so happy!