FTB in London - what multiple of your salary are you borrowing?

[Etherealhedgehog]

Just that really - I know we can get 4.5x, I also know that back in the day the advice was not to borrow more than 2.5x or something along those lines - but the reality is that now (on our decent but not astronomical incomes) it's not possible to buy a place in London (which is my hometown - so not keen on leaving) if we only borrow 2.5x.

With interest rates as they are now we've calculated that we could manage monthly payments for a 4.2x mortgage (with a 15% deposit), but I'm aware that interest rates will go up at some point. In terms of outgoings, we've got to get through the next two years and then free nursery hours kicks in, which will make a big difference as DD is in nursery full-time.

I guess I'm just interested to know what people have gone for? DP and I are both naturally quite risk averse, but with a 4.2x mortgage we have the opportunity to buy a house, instead of a flat, which we would love to do (and will help us to avoid some of the risks associated with owning a leasehold property - so there's that).

If you bought in London many moons ago by borrowing 1.5x your salary then I am thrilled for you but please don't tell me that!

Like I said in my earlier post, I've never bought a house with less than a 4x multiple, and I've never regretted that

I think the disposable income post-living costs is a FAR more useful thing to go on that the blunt instrument of multiples, but obviously stress test it based on rising interest rates (which the bank will do anyway before they lend)

I think it’s relatively normal to buy in London at 4.5 times income. We bought at about 4 x joint income with a mortgage term of 30 years initially. I was nervous too and wondered about a flat instead of a house, but am so glad my husband did his excel magic and convinced me we could afford the house. Prices have gone up so much where we live in the past few years that making the jump from flat to house is pretty tough. We bought a house with retro interiors and have been very slowly doing it up. Has worked well for us. And pretty happy we don’t necessarily need to move again, despite the addition of DC since buying.

4.5 times 2 incomes. We bought when we were 27 and 29 though. So younger than a lot of FTB. We bought a 2 bed flat in zone 3 and my rationale was that we wouldn't have gotten a bigger place in the location that DH wanted for 500k (the cap for FTB to get stamp duty holiday) so we settled for what we could get for a 400k budget.

I am now 29, DH is 31.

Even though my multiple was so large, I am now overpaying by £1000 every month so hopefully that builds equity.

@SW1amp
The op said nothing was in reach at 2.5x. Hence you sums are pointless. 4 x £90,000 joint is more doable but a house might still be a stretch! Ex LA maisonette less so. Surely travel costs have to be factored in as well and unsure earnings potential in the future.

it's completely normal particularly on those salaries where your income left after mortgage payment won't be so bad.

I would say in the current climate to future proof as much as possible & buy somewhere you can stay a while etc but that's your plan anyway.

I think it's definitely very common to max out your salary multiples in London - especially if you want a good sized property. I have just bought a flat at 4.5 x my base salary, 30 years at 60% LTV (5 year fixed term). Because of the large deposit, I was able to get a very low interest rate and intend to overpay the mortgage to build equity.

The most important thing is to stress test it to see if you could still pay off your mortgage comfortably should interest rates go up, personal circumstances change etc. In my situation I decided I was comfortable taking on a larger mortgage as I have a clearly defined pay progression and a lot of job security - plus the opportunity to do locum shifts if finances became tight. Someone else on a similar salary but with different personal/professional circumstances might well feel differently.

I wish you luck with your property hunt!

I borrow at 4x. But I have huge help from family for a good deposit, otherwise there is no way I could have afforded it.

We spent 4.4x joint income on our current house with a 40% deposit which was largely made up of increase in value of our previous house which was also a 4.5 or so x multiple. Interestingly due to lower interest rates our payments on both were similar. We also borrowed on a 30 year term despite neither of us planning on still working FT then. I figure I’ll pay it off once kids in school…

If interest rates doubled we couldn’t afford the mortgage, so that’s a bit of a concern, but figure if that happens something will work out - I’m a massive optimist with money!

[quote Etherealhedgehog]@StuckOnHoliday this is a good point, thanks. We'd get 30 free hours and definitely not expecting that to equate to free nursery but we are assuming it will at least free up a few hundred a month that could then go on something like increased mortgage fees.

Good to hear that 4-4.5x is not considered bonkers, though our 15-20% deposit doesn't feel quite as good as I thought it was compared to some on here. I think if we do try and stretch to a house we would also be getting a 30 year mortgage but trying to pay it off faster if possible, eg. as childcare costs reduce.

My concern is partly that we both work in the charity sector, where wage structures are relatively flat, so can't expect to see a very significant jump in our incomes at any point - so we won't have the funds to upgrade to a house in a few years, whether or not we feel like we're outgrowing a flat. We had also been looking at ex-council maisonettes, which offer the space and garden - but got burned by undisclosed major works fees on a place we had an offer on and have decided to avoid all ex-council places as a result - the risk if we were to face a major works bill at some point in future is just too great. This unfortunately greatly reduces the number of leasehold options, particularly if you want a garden / a bit more space.[/quote]
We got 30 hours and ours had dropped from £1400 to £860 so that's a pretty big saving!

We borrowed 3.7x joint salary and had a 22% deposit. We went for a 30 year term which enabled us to borrow a bit more. We overpay every month so the mortgage should be paid off well before the 30 years.

I managed to get ~4.3×, with a 10% deposit, this was many years ago though.

It depends so much on the circumstances of the individual. Multiples have a different level of importance depending on the salaries involved and the banks know this too, as they give up to 5.5x for higher earners who have more disposable income after basic expenses are taken care of.

I personally would have no problem going for the maximum multiple because I see our salaries increasing quickly over the coming years and our skills will always be in demand. Certainly in tech things are totally exploding.

We ended up probably under 4x but only really because stamp duty started to get a bit silly and we wanted to get a 75% LTV for the MUCH better rates. That limited how much we could spend more than anything else.

Same joint salary as you and we went to 3x, but we were lucky enough to have a big deposit. Bought an absolute shithole for that, though, which means we feel overstretched – don’t underestimate the costs in maintaining and doing up an affordable London house! And more house = more doing up. I wish we’d stretched our mortgage more to get somewhere less fixy-uppy: all our disposable income goes on firefighting the bits of house that keep falling off.

We bought in London 5 years ago and borrowed 5x our joint income with a 10% deposit. The repayments were only marginally above our rent so we knew we could afford it. We have sold it this year and our buying family home now. We are borrowing 5x income again but only on a single income this time with a 30% deposit as we made a lot on our first place as it was a fixer upper and payrises.

Personally, I ignore the multipler and look at what the repayment is. Can you afford that? Is it tight or do you have wiggle room? How does it compare to what you are paying now? I don't regret maxing out at all and all my friends also maxed out. Only one of them regrets it as it was a massive jump in family rent rates to mortgage payments of £300pm to £1200pm and they weren't prepared to lose that disposable income.