Confused over mortgage changes - can someone explain like I'm 5?

[TodayIsMagic]

We put our house on the market earlier this year. Agreed a sale with a buyer, which is completing next week. We're moving back in with family as we did not find a suitable onward purchase and didn't want to lose the buyer. Family have room for us and won't charge rent, just contributions to bills.

Simple question incoming...

I fully get that if we were staying put our mortgage rate would go up (currently 1.3% fixed deal which ends on the day we complete) and the monthly payments would be more given the best fixed deals, or going onto SVR, would result in a much higher interest rate being applied to the loan.

Earlier this year when we were searching for a property we spoke to a broker and got quoted the usual 4.5 x salary as maximum amount we could borrow, along with an estimate of what monthly repayments would be.

Can we still borrow 4.5 x salary in this scary new world? I will speak to our broker again, when (if!) we find a suitable house to offer on, but for now I'd like to know if I'm being deluded searching on Rightmove with the budget we had earlier this year?

I'm considering looking for a new job in 2023 - is there a way to calculate roughly how much more I'd (or we) would need to earn to make up this potential shortfall in what we could borrow in 2023 compare to earlier in 2022?

Really hoping we'll only be with family a few months and can still buy with our same criteria (ish) in 2023 🤞also aware of predictions house prices may come down/be corrected.

Thanks!

You say “we”

is your partner also so confused?

just wait until you speak with the broker. But be clear and succinct in what you’re actually asking

Earlier this year

then and now is rather different
so get yourself back to the broker

Even if you can still borrow 4.5 x salary in this scary new world, it will cost a hell of a lot more than it would have before! You don't need to wait until you find a house before speaking to your Broker, speak to him/her now and find out what budget you have.

In answer to the changes about how much you earn to borrow ratio, you need to speak to a broker, or get a mortgage offer in writing which is valid (in my case 90days)

my mortgage was 1.25% when it was fixed (£1,250pa/£24pw for the interest) the fixing came off a week before the first interest rise to 3.19% (£3,190pa/£62pw) for the interest) the base rate is now 3% so I think my interest rate will be 5.89% (£5,890pa/£114pw).

The above figures are for the INTEREST on £100,000 loan not the repayment aspect. If your mortgage is £200,000 then double the above figures, £300,000 then treble the above figures.

My mortgage is £50,000 left on 17years, my repayments will be at least £120per month more next month.

Im grateful that I don’t owe more, but I’m to scared to turn the heating on tonight, and we are sitting in the kitchen cos the oven is on.

I feel really depressed and scared actually, so an early bedtime I think.

We have just accepted a new mortgage deal on approx 5.5% and the amount we are borrowing is equal to 3 times our joint salary. I'm not actually sure how much more they would have let us borrow, but that was the maximum we felt comfortable with considering the monthly repayments, so we have adjusted our expectations accordingly and are also using some more savings than we had originally planned to.

Out of interest, I just worked out what our repayments would be if we borrowed 4.5 times our joint salary - that would work out at approx 40% of our income, as opposed to 30% of our income if we borrow 3 times our joint income. Taking into consideration other bills, childcare etc, and actually trying to have a bit of a life, paying out 40% of our income on the mortgage just seemed a step too far for us. First of all, you need to do the calculations to see what you can comfortably afford before finding out what the bank will lend you.

Thanks everyone for taking the time to replay and explain.

So I guess DH and I should be thinking of these changes to borrowing costs as less about IF we can still borrow 4.5 x our salary and more about what a lender would deem us able to comfortably pay back each month.

I Googled a mortgage repayment calculator and changed the original rate we were quoted in May 2022 (2%) over a 30 year period to 6% over the same time period and the monthly payment is £1,100 more. We could still afford this however it would take up 52% of our current household income -- we probably wouldn't pass a stress test? I guess we could extend the term to 35-40 years and try to overpay. I'll leave it to the broker to deliver the news to us!

I think you’ve answered your own question, really - it shouldn’t be about how much the bank would theoretically loan in income multiples and more about how much you and your DP think you can comfortably afford in repayments. The higher the interest rate the more expensive the loan, so the lower the income multiple times keep it comfortably affordable.

You'll be stress tested to 8% by any lender as well.

When we first went to see a mortgage broker many years ago, she gave us an A4 pierce of paper with lists of different sections, we were slightly shocked, but we “sort of” listened, we did buy a house in a cheaper area instead of a flat in the pricier street consoling ourselves that we were freehold, extra bedroom, garden, extra downstairs room and we could park a small car on the front. None of this came with the flat, and then in the early 90s when the mortgage was 16% for a month or two (complete killer for most) we had a lodger and another friend stayed for a couple of months.

On that list, we had to write the cost of the mortgage monthly - we didn’t know, we didn’t have one!!

Rates? (Now council tax) look online for an average and divide by 52.

Cars. She reckoned if you added up your petrol, insurance and road tax, then use that figure for service/future replacement.

Utilitys. Phone, electric, gas, water, do u need sky?, internet etc

Clothing allowance - we both got uniforms for work, I still do, it saves a fortune.

Haircuts

Holidays

Christmas/Birthday/Weddings/Hen and Stag dos.

Children?? We put of having those for a few years!!

Pets

Our first property was wonderful, very low outgoings, we had passive incomes from it too, we didn’t need a car, practically walked or cycled everywhere.

it was when we moved to our next home which was/is beautiful for the next stage in our lives that I fully understood what mortgage means. Mort is French for death and gage is French for debt I think. “Debt for Life” I believe.

if you can overpay every month, the debt comes down quicker, but you are only young once and so are your children. It’s a hard balancing act, very few of us get right.

I wish you the best of luck in your next house, and if it means having paid for 15-20 year old cars (I absolutely adored my £350 ford escort even though it totally disintegrated, it was loved, and she was mine for 12.5years, and now i love my £1200 beetle, it has heating, real air conditioning - not rust holes, I don’t have to park at the top of a hill any more to bump start her - the escort was like that for 5-6years, much to the embarrassment of the children, but she (the escort) taught them to drive and got them to every club and social event on time.

it’s easy to say, but have loads of fun and memories in a less expensive property/car if you can, because you want your children to be able to do everything that’s offered to them, but it does involve money. Good Luck

I guess the question is do you want a big mortgage even if they will lend 4.5x salary?

Thanks so much @ScroogeMcDuckling for taking the time to answer in such detail. What is on our side is we have breathing room now to take the next few months (or longer, who knows!) and consider all those things you mentioned, plus more, and cost them up. We have no debt and neither of us are the type to get into unnecessary debt for material goods we don't need.

@HermioneWeasley if we could still borrow that amount it would mean we can stay in the area, near family support and good schools. It would be a big mortgage but would be a monthly payment for something that met our current needs I guess? We have a young DC and would have 1 more (if money permits). We spend a lot of time at home so part of me feels it would be great to have a house we loved in this area that was a decent size and had longevity...but then I know the children will grow up and spend less and less time at home, I guess that's when people consider downsizing.

Hold on to your dreams, if you and your partner are singing from the same hymn sheet, dreams do come true.