How much could we borrow? Please help me understand.

[AfterTheRainComesSun]

DH and I will apply for a mortgage next year. I have run some numbers past a broker that did a soft check on how much we could borrow and I was quite surprised to see the amount with most lenders was much lower than what I had envisaged by using several mortgage calculators. The only exception was Halifax which was in fact even more generous than I have expected.

Joint income is £110K, FTB, 1 DC aged 3, nursery fees of £1200. We live in the London outskirts and our budget for a house is roughly £500K-£520K. Based on several online calculators (halifax, natwest, santander etc) I was always under the impression that this was possible with a 10% deposit and that we'd been able to borrow anything between £450K to £500K.
Based on the brokers calculations, the amount we could borrow with most lenders is much lower, more likely £350K (except halifax). Isn't this way too low for a £110K take home pay?

We don't have credit cards or loans.

I think the 350k is right I'm afraid. Most banks will lend a maximum of 4.5 times your salary(this was the case for us about 2 years ago. I don't know whether it is the same now). They then look at your affordability and that 4.5 times starts to drop once you throw in credit cards/loans/maintenance fees that you are committed to and of course that large nursery bill that you have. I bet if you weren't paying the nursery bill the amount you could borrow would be closer to the 450-500k estimate that you have.

The broker will be right, the online doo dahs show aspirational numbers.

Are you working? If not, you are considered a dependent and that lowers affordability. Your affordability is also lowered by your child. Over the last year, lenders have quite literally doubled the living costs they plug into calculators for the cost of supporting dependents.

I don't think not having debt necessarily always helps. If they see you have credit cards or small loans, it makes them happy because regular payments show you will be a responsible mortgage holder.

The OH earns 108k. Obviously he pays more tax than if we both earned half that (we would be 890pcm better off, if that were the case). We have no kids. Ill health means I am a dependent. At the time (May), we had a 12k loan and 350 pm car lease. The online figures showed us we could borrow up to 532k (which I thought was pretty obscene). Anyway, when it came to the actual house purchase, our brokers struggled to find many lenders who would loan the 441k needed. They did find them, but there weren't a large number of them. And the term had to be 33 years to make that affordable. We didn't go ahead in the end, but I am going to call our broker again in about two weeks, and I am expecting that maximum to have shrunk to probably 380k - because that's happening to pretty much everyone who hasn't got a massive payrise since they last looked.

Every time the economy has a wobble, lenders change lending criteria, so your 10% is now seen as less healthy than it was a year ago.

@Notyetthere but I have always added nursery fees in all the mortgage calculators in the banks websites (looks like without the nursery fees our borrowing potential is even closer to £600K but goes down to what I was saying above when I input the £1200 in childcare)

It's because of the nursery fees. That figure is the cost of another mortgage on top!

@KievLoverTwo we both work - income distribution is 60% - 40% I'd say. I also get a £5K bonus on top of that.

We did have credit cards before and DH had a loan which we have repayed in full so we don't owe anything now but should have very good credit history

I think you need to talk to your broker to understand why it's so much lower than you expected.

I also think you should start spending a bit on a credit card and pay it off in full every month, so you have recent history of timely debt repayments. They love to give money to people already borrowing money!

Of course, you can consider a longer term as we thought we would have to do, but you pay through the ear in extra interest, obviously.

When are the nursery fees due to go away? That will make a big difference.

(He got an 8k bonus just before we applied)

I'd expect you to be able to borrow more, to be honest.

My DH and I earn similar to you (outside of London) and last year we were able to borrow up to £595k and had an overall budget of £700k. Affordability will have changed since then so I can see it being a bit lower, but not half.

I agree that a chat with your broker would be a good idea. If you're still unsatisfied, then try another broker. I can recommend WiseOne - they've always gotten us excellent rates and deals.

I think those mortgage calculators only give a very rough idea @AfterTheRainComesSun

In reality, lenders are more cautious and probably won't have included your bonus unless it is 100% guaranteed every year which tends not to be the case with bonuses.

Can't you just go with Halifax if they are offering you what you expected and what you feel able to afford in repayments?

I was a ftb at the end of 2021. I have 2 dcs and our childcare costs were around £1000 a month then. Those costs resulted in a mortgage offer of around £50k less than it could have been if we hadn't of had those costs.

It was really frustrating at the time because in around 18 months our costs reduced to £300 a month plus we were saving at least £500 a month towards our deposit so a higher mortgage was more than manageable to us. However, in hindsight, since we're now looking at having to pay around £500 a month more when we remortgage having borrowed less was probably for the best.

@Twiglets1 we are not even ready yet so technically yes we could just go with that but mine was mainly a generic concern around those figures as 3 out of 4 lenders would be offering way less than what we'd expect.

@Ionapussy the issue is that being in London (and commuter towns around London) and having a DC and being in our late 30s, we wanted to get a house where we can see our family live for the long term; I don't mean a massive property but even a spacious 2 bed or a modest 3 bed terrace would work for us; that budget isn't going to get us that!

I was in the same situation. Late 30s (turned 40 the week after we bought), 2 dcs wanted a house. You presumably have a budget of circa £400k if you assumed a 10% deposit? I'm in Surrey and my budget was £380k. I appreciate £400k doesn't buy that much in Surrey and not at all in London boroughs. We managed to buy a 3 bed in 2022. It's a small 3 bed mid terrace with a courtyard in a nice area, direct train to Waterloo. Needs work though so looks an absolute mess and is miniscule compared to dcs friend's large houses!

I found bank estimates were slightly higher than what our broker could find but we bought in a slightly different economic climate. I don't think we'd be able to get a big enough mortgage now to buy our house even though childcare costs are lower and we've had pay rises. We had to take a mortgage until I was 68 to get enough to buy - would a longer mortgage help increase the amount you can borrow?

In April this year the max we were able to borrow was around 250k and that was over a 40 year term (which I am still annoyed about).

Our household income is lower at about 75k and our nursery fees are about the same as yours 1.1k a month. No loans or credit cards.

The mortgage market is especially shit at the moment. We started house hunting about a year ago when our borrowing potential was around 100k more (at a 25 year term) than it was by the time we completed on our sale.

Trust me your much better off at taking a conservative borrowing figure than getting so far down the process in buying a house and finding out that mortgage products have changed again and suddenly you’re having to put down a much bigger deposit and a mortgage over a longer term.

I suspect it's the childcare bill impacting your affordability, we are on a similar income and when I looked about 6 months ago we could borrow enough to buy a £500k house, but we have minimal outgoings, no childcare costs. I certainly wouldn't fancy a mortgage payment for a £450k mortgage on our income, never mind with childcare costs as well.

@Ionapussy where about in Surrey are you? all the locations we are considering and that have a relatively easy commute are very expensive and £380K wouldn't get you a 3 bed house. We would be happy with a decent 2 bed though but budget is still between £450K and £500K in most areas.

We'd take a 25 yrs mortgage I think - makes me a bit uncomfortable to go beyond the pension age and actually I didn't know you could do that!?

@yeekls yes but childcare is just a limited expense, we have 2 years left but we are not even ready to apply for a mortgage yet so by the time we do that and actually start repayments, we won't have much left in the expensive childcare years.

My mortgage is due to end the week I turn 68 (68 being my current state pension age). I'll dm location

@AfterTheRainComesSun yes absolutely your affordability should improve when your childcare bill reduces, have you tried a calculator without the childcare to see the difference? Also, if rates manage to reduce in a couple of years then that might help affordability too.

@yeekls we are just so fed up with renting! Stamp duty reductions are also a big advantage that will end in spring 2025 so we don't want to wait much much longer. DD is also due to start school in 2 years and we wanted to move somewhere new before that - we cannot afford a house in our current area as it's very very expensive

They were prepared to lend to my OH up til the age of 74 on the aforementioned 33 year term. I think it's because he is contributing to a half decent pension.

@AfterTheRainComesSun I completely understand. NatWest used to ignore childcare in affordability, I'm going back 6 years now though and before all this mess, but might be worth asking.

Talk to another broker. We spoke to a couple and found our affordability varied massively between them!

Will you be getting 30 free hours by the time you come to apply for the mortgage, that should roughly half the bill which will help

@aggywaggy why is that I wonder?

@PinkPlantCase the figures we have him include the 30 hrs funding. Even with that, full time fees are £1300 :(

What is your deposit? If that's not above 10 percent then that will be part of the issue

@AfterTheRainComesSun I’m no expert but all of the lenders have all different requirements, some are perceived to be stricter than others when it comes to calculating affordability. Also brokers (although they profess to be independent) often have better relationships with some lenders over others and therefore they will push their products. My first one seemed to have an in with underwriters at Nationwide which was handy for us but they literally went through our outgoings with a fine tooth comb. Another one I had on a later property I bought recommended Virgin as they were thought to be not so strict and a bit of more understanding if outgoing were for a limited period of time, they also took into account my partner’s overtime when calculating our affordability while other lenders wouldn’t even consider it. Some brokers are really cautious and by the book too while others will suggest clever little ways that you can make your affordability look more healthy.

£250k if you have a combined income of £100k seems very very cautious. What does that bring your monthly repayments out to?

Back of a fag packet:

£1200 out of taxed income for child care. Gross it up and that's about £1750 untaxed if you are higher rate tax payers. That's £21k untaxed out of your joint income, so £89k adjusted joint income, so if you do the math 4x £89k, means £356k max loan.

Wait until DC is in reception year and that £1.2k cost is gone.