To get a mortgage or not

[Marie324]

Hello
Looking for some impartial advice what on what to. We are currently renting and family of 5. Our outgoings are very high as we live in SE. Rent is £1900 pcm, food bill is £1000 per month and that's if we are strict, bills come to £1000 per month. We have one disabled child due to this claim £1500 in universal credit per month. My part time salary is 28k and my DH is 49k. We also get DLA of £550 and child benefit of £240 per month. This seems like a huge amount of money coming in but we honestly struggle every month and are in a lot of debt. We have a deposit for a mortgage which has kindly been gifted to us but means we will lose our universal credit allowance making us £1500 worse off a month. My post is basically to ask for advice on whether to take a massive financial risk in order to get a mortgage. The minimum we could get our repayments to is £1600 per month. My employer currently is unable to increase my hours. Any advice welcome. Thank you!

I already did and you ignored it. You don’t even know London well enough to know where to look.

😆bluster without evidence is like cooking without ingredients...lots of noise but no one's getting fed!
I haven't seen the unicorn you insist is hiding somewhere so I'll bow out now without distracting the OP any further...👋

Yes. Unfortunately this might sadly be the reality unless I work more hours to make up the UC lost but even so I wouldn't be able to make up that amount with working more hours.

Helpful to hear you're experience thanks. I think cost of living plays a big part in why we are struggling financially. We buy no luxuries, don't eat out, haven't been abroad in 10 years and yet we are still in this situation. Everything just adds up. I think we may need to consider that we cannot afford the mortgage as sad as that reality may be.

Are your jobs relocatable OP? Would it be feasible to move to a part of the country with cheaper property?

We could potentially move a bit further out but then it complicates things with schools and funding. Only a tiny bit cheaper too. We couldn't move north or anything like that.

I understand.

If you could completely relocate to the north that would be one thing but moving a bit further out just incurs moving costs and increased commuter costs.

I think its risky, as your rent isn’t really £1900 when your housing allowance is £1450. Obviously longer term its better to own, but you sound like you’re struggling already without adding more outgoings.

The maths isn't mathing, unless I'm missing something.

Your incomings are £7496 per month, and your outgoings are £3900, leaving £3596 spare?

Your rent is £1900, but if you subtract the £1450 you get for housing, the roof over your head is costing you £450 per month.

You want to know whether you can afford a £1600 mortgage, if your income goes down to £6046? Well yes, because you'd still have £2446 left over every month, however, you would have to accept that you have £1150 less left over every month.

Unless you haven't added up your outgoings correctly, that seems to be a lot of cash left over each month??

I guess another way of looking at this, is to project forward 10 years and see how your situation would look then, following both paths.

You're really paying £450pm now for your house (£1900 rent minus £1450 benefit), so over the the next 10 years that would cost you £54,000 that you'll never see again.

£1600 mortgage payments would cost you £192,000, however, only the interest element of that is lost. The rest would be chipping away at the capital and your house would also have increased in value.

I can work this out, if you can tell me the price you would be paying for the house, and out of the £1600, how much is interest?

This will be an interesting calculation to do, and let you see in real terms what the comparisons are.

can you tell I am a retired Bank Manager

Or, another way of looking at it, is that currently the £450 you spend on rent is dead money. How much interest would you be paying on the mortgage? Because only the interest is the dead money. The rest is you putting money into an investment that will grow and grow. If the interest is less than £450, then you're actually better off, even though in the short term it won't feel like it. But in the long term it will, because you will have your own home, and eventually no rent or mortgage to pay.

Ok... so my net monthly income is £1,800 per month, DH net monthly is about £2,400 as the car comes out of his salary on a salary sacrifice lease for £400 per month.. we are looking at cheaper cars once this ends in 2 years. UC is about 1300 - 1500 depending on how much we earn month to month, DLA 550 and child benefit 240. That takes our monthly income to about 6.5k. If we lose UC this will drop to 5k monthly income. Price of properties in our budget are about 400k. Repayments of 1630 approx with 5 year fixed rate of 4.17%. At the moment we repaying about £500 a month on debt (majority is not my debt) this will be paid off very soon anyway.

I forgot to add we were also trying to save for stamp duty and fees so have been putting about £200 aside each month but I know that does seem a bit futile with the existing debt.

How much of the £1630 is interest? I can't calculate, as I don't know what deposit you have and how many years the mortgage is over?

Monthly interest would be £1251 i believe. We have a 10% deposit. Term would be 35 years.

@Marie324 you can put the numbers in here to see how you chip away at the capital each year https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

Okay, throwing some figures about. Make of this what you will!

I bought my current house 13 years ago for £201,000. It's now worth £342,000. That is around a 70% increase in growth. Divided by 13 years = say 4% compound growth per year.

If we apply this maths to your house, bought at £400k today, and growth at 4% compounded for the next 35 years, then it would be worth £1.5 million at the end. It will have cost you £670k over that time, with interest added (as per Martin Lewis calculator). So you will have spent £670k, and made £830k profit. And you'll be sitting in a £1.5 million house, with no mortgage or rent to pay for the rest of your lives.

If you stayed paying rent for the next 35 years, at £450 per month cost to you, you will have spent £189k but you will have nothing to show for it. And you will have to continue to pay rent until you die, which could be another 20 years, at a cost of a further £108k.

Interestingly, I bought my first house 35 years ago for £65k. If we apply the 4% compound interest growth model to that, the house would now be worth £262k, which is actually spot on.

All a moot point of course, if you can't afford to find the extra cash for a mortgage right now.

But these calculations do go to show, how something costing you more now, actually pays off in the long run.

I should add, that my houses were/are in the North, so given that you are in the South, 4% is extremely conservative, and you'd maybe be looking at even bigger gains.