How far would you stretch yourself on mortgage payments?

[BigFishFace]

In our ongoing saga to move house into a good school catchment area we have found a house that is at the absolute top of our budget. We could probably get a mortgage for it (and we have a large deposit) but DH is worried our mortgage payments will be a stretch too far.

We’ve been through ALL our expenditure over the last 12 months, including bills, childcare, food and frivolous items like nights out, clothes, presents, weekends away etc. If our spending remains the same we would have about £100 spare each month after the new mortgage payments.

I think this is ok, but DH thinks we should be saving money each month. In an ideal world I agree but I’m prepared to reduce our household spending and have no savings to get a decent house in a good catchment. Am I being stupid?

Op what percentage of your income is the mortgage?

And yes I do think people put money away each month. We put away £500 a month. Generally we're saving for something ie a holiday but we do have savings just in case.

Really good post by randommale.
I would add that when I remortgaged in April they asked me to declare any future changes that I was aware of, so had to declare my pregnancy/mat leave and think I did my childcare costs too, as I had to state I was returning to work!
Our mortgage is c.20% of our income and I've been toying with the idea of selling our house and being mortgage free somewhere cheaper, I just hate being beholden to that £933 a month!

Lapufalina we've remortgaged 6 or 7 times since we've owned a house (we tend to get 2yr deals and remortgage at the end of the 2 years) and without exception we've always been asked about any likely changes to circumstances / income, so that's nothing new.

The only worry I have about a long term fix (5yrs or more) is that circumstances can change - jobs, illness, marriage breakdown etc, not just a change in the economic climate or interest rates, and being tied in to an inflexible mortgage that you can't get out of without considerable expense (3 years of hefty early redemption charges for example) would be difficult.

100/month of wiggle room would definitely not be enough for us, unless your calculations are including savings? We try to follow the 50/30/20 rule for budgeting how to spend our take home pay—50% of net income for expenses and fun, 30% for housing costs, 20% to savings (this is in addition to retirement savings which is taken out of DH’s paycheck before we ever see it). In this uncertain housing climate I don’t think a school catchment would be reason enough for me to overstretch financially. It’s no fun being house poor, especially when unexpected expenses come in, as they tend to do in spades with newly purchased houses!

I should add though that IF pension savings are already sufficient (we use the rule of 15% of take home, so we top up DH’s contribution so that they take 15% before we ever get paid; his employer also matches that, which is basically free money) and IF you have a decent emergency fund saved up (at least 3-6 months’ worth of all expenses), perhaps you can relax a bit on the saving front to stretch a bit in that category over the short term (so, the childcare years) for a mortgage on a forever home.

I do think 3k in the bank is really not enough for you to be resilient to any big financial shocks.

You'd be a fool to stretch yourself on a mortgage in a time when housing prices are falling, and interest rates are only going to increase. In times of low interest rates, you should be paying the principal and interest. You should not be going onto a fixed rate mortgage in times of low interest, because you will be up shit creek when rates rise and you're forced to pay down the principal too.

Also this fanciful, "Wages will increase" thing that Oreo spewed. It's not happening. It hasn't been happening in over a decade.

But as to how much they rise, well I remember my first house in the mid-80s and double figure interest rates!

Yep. Rates were at around 18% here in Australia during the mid-80s.

I would get the house tbh. £100 left is after weekends away nights out etc. If it was basic spending I'd say no. You'd just have to cut your cloth if you needed to.

People that have a mortgage a much lower percentage of salary may have bought before prices got stupid, or happen to live in cheaper areas.

Houses in London always need repair. We have had to pay a few thousands for leaks etc in last two years. However, we knocked off 25,000 as we knew we would have leak repairs etc.

Really interesting discussion. We were looking at doubling our mortgage to be able to get a good house with good schools, which would have stretched us massively.

However, to lower the risk of this we’ve decided to keep our present house, rent it out so we can rent a bigger place that is a financial stretch, but if in the future something happens and we can’t afford it, we can move back to our place. Feels less risky!

Maybe you mdntion moving to get good schools - depending on where you are, the application rules may mean your old address is classed as your 'permanent' address if you rent in new area but keep your old house (and you'd be at bottom of list for new area school place).

@namechange - We’re moving to an entire new county - but will check that - thanks.

The move isn’t just school-based - we just need more space with two growing boys!

@BigFishFace
I would be surprised if most people saved £100-400 a a month. That’s £1200- £4800 a year. Do people do that? Or do people just live within their means?

Not many people I know. We don't currently save much at all at the moment. And if something breaks we would use a credit card.
We live comfortably and buy/spend what we want most of the time.

I always feel out of place in these threads as people say things like they couldn't possible only have £400 spare a month.

Apparently on average we (the UK) save £104/m.

This tax year we should average £1400 a month into savings but some months we have only just squeaked through without saving anything.

It sounds like you really want to do it and I do sympathise. However, I just wouldn't think the stress with money being so tight would be worth it. Having money worries is horrible. I spend 23% of my personal income on the mortgage and I think that's about as much as I'd want to, with other bills and childcare on top. In terms of truly disposable income, the minimum I would feel comfortable with is about £500 per month after all essential costs.

30% is fine, it's the top end of what is recommended, if it's your childcare that is stifling you at the moment that isn't forever anyway. Your figures wouldn't make me too nervous if the house gets you exactly where you want to be.

Also, have you looked at taking out a longer term loan and instead over paying on the mortgage? This means your mortgage payments aren't really high if something goes wrong but by over paying you are still reducing the term. Just something to consider if your term is extendable.

(Although I do agree with the warnings in interest rates, I would test your outgoings with higher rates)

Way too risky. Don't do it. We spend 10% of our earnings on the mortgage and have plenty left over to enjoy life and save. Interest rates will rise, you dont know the impact of Brexit. It's just not worth it-the stress of keeping your house could be immense.

How would mortgage affordability checks even allow the mortgage to go through?

My maximum mortgage lending amount would still leave me with plenty

Ours is currently 25% of take home and maximum lending criterion would allow it to go to just over 30%.