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.

It depends. Take home means after tax. The mortgage multiplier is based on gross salary.

@AfterTheRainComesSun it wouldn't surprise me if the FTB stamp duty free period of up 450k gets extended. The banks desperately need FTBs to make chains start and frankly the Tories are very unlikely to get back in and will be happy to saddle labour with the responsibility.

Read the chancellor's statement carefully on 22nd Nov.

I might be going mad, it has been a long week, but I might have even seen something somewhere in the last few days about increasing the number for Londoners (just a rumour).

LTV makes a difference. The interest rate lowers with a bigger deposit. Then you can borrow more if you keep repayments the same. Personally I’d borrow a bit less and have money for unexpected expenses.

We have stretched mortgage term out and plan to overpay, this was the right decision for us as we were able to afford a bigger house and we now won't need to
move anytime soon. Our term is until we are 70, so you can go beyond pension age for sure (this is with halifax). We have no plans to still have it when we are 70 but it takes the pressure off having to pay a higher amount whilst we still have nursery fees (and mat leave at the moment) and it will be more affordable in a few years as we have more disposable income.

Your nursery fees will have a lower impact on your affordability on a longer term with a lower monthly payment, you may be able to borrow more.

Length of mortgage term does make a big difference to repayments but overall it’s more expensive if you don’t overpay. Paying for a longer term can cost a huge amount more. So it needs managing and savings rates considered too.

We have stretched mortgage term out and plan to overpay, this was the right decision for us as we were able to afford a bigger house and we now won't need tomove anytime soon.

This has been our approach too. We need our family home now, it's no good us working up the ladder in our 20s and 30s getting to the bigger home by the time kids are mid teens, we need the family home and an affordable payment now. We had our kids young so in our 40s we will have 2 options to try to avoid paying a mortgage until we are 68 (although ultimately that is still an option too, albeit an expensive one) 1) we'll be in a much stronger position to overpay, we have good careers and will still have at least 2 decades of working after our youngest id 18 ahead of us if we want/need to 2) we can downsize to a smaller home and mortgage. Hoping it'll be option 1.

I've never understood the obsession with getting mortgage free asap, not to the detriment of the childhood years, I need the money more now than I will in my 50s.

I also don’t understand the obsession with being mortgage free asap at any cost. We won’t be mortgage free until I’m late 50s & husband is early 60s.
That’s fine to my mind so I’m surprised when people obsess about getting mortgage free by their 40s or early 50s.

We could have made overpayments and been mortgage free earlier but we really enjoyed our family holidays and spending money on other nice things when the kids were younger.

That's all fine, but for others it's about having time to build pension pots ahead of retirement while earnings are at peak level in 40s/50s without mortgage drain. It also depends on your age, when you entered the housing market and what is realistic to repay, and length of term.

Sure everyone’s different

That's all fine, but for others it's about having time to build pension pots ahead of retirement while earnings are at peak level in 40s/50s without mortgage drain. It also depends on your age, when you entered the housing market and what is realistic to repay, and length of term.

We have excellent public sector pensions, so yes admittedly that has helped ease my mind in regards to prioritising mortgage later, we won't be needing to save up separately for pensions/old age.

I think longer terms are becoming much more common. We don’t live in London and most of our friends who managed to get on the housing ladder in their mid 20s have atleast 30 year mortgages.

We took out our 40 year one aged 28 and that was to buy the house that we can literally live in forever. We are also at the start of our careers so out salaries will increase massively over the next 10 years or so which will allow us to reduce the mortgage term if we want to.

The financial regulator fairly recently approved release of the first ever (I believe), 50 year mortgage.

Thanks all. Our broker made a small mistake in the data he had entered but even with the correction, it is a slightly lower amount than expected (except Halifax, which is infact more). He also suggested we should take a 30 years mortgage to maximise borrowing potential, however having a mortgage way into our pension age makes me way too nervous, especially as it'd be big repayments being in a place where property is very expensive. Do the majority of lenders allow you to overpay or do people with such long mortgages just generally tend to switch lender/deal and remortgage?

As far as I’m aware all lenders allow you to overpay but the limit ( on a fixed rate mortgage anyway) is normally 10% of the mortgage amount a year.

When you overpay you can reduce the term.

On oer paying usually you can pay back up to 10% of the loan a year without penalty eg my last mortgage with an interest rate fixed for 5 years. Repayments in that period up to 10% were allowed. Any over that were subject to a penalty of 5% of the sum repaid over that. However it does vary so check the individual terms regarding over payments if you plan to make them.

When rates were similar to those today, back when i first bought, it was 3.25x salary max. This hadn't changed when I bought a house in 2004

@AfterTheRainComesSun I wouldn't get too bogged down with term length, as previously stated you can usually overpay by up to 10% a year and that has a big impact on the length. Or just take a long term now whilst you're in the childcare years and remortgage to a smaller term in a few years, the mortgage you take out now doesn't have to be the one you keep for decades, most people remortgage a few times.

Halifax tend to be one of the higher risk lenders willing to lend more, but the rate is usually a bit higher in my experience.

In past decades, a lot of people just stuck with the SVR or a tracker, those let you overpay as much as you like. It's only been in the last 15-20 years that folks have gone with fixed rates.

Most fixes allow you to overpay up to 10% of the outstanding balance.

Some will let you do that whenever you like. Some will only let you do it in a lump sum, once a year, which obviously means you are not chipping away with it as quickly.

It's standard practice to pay off a chunk just as you are remortgaging, nobody penalises you for that.

You can absolutely ask your broker for an unlimited overpayments mortgage, but it will come with a slightly higher interest rate.

Tbh I think most people taking out expensive mortgages are quite young and haven't nearly reached their earning potential, so don't really worry about it too much, assuming overpayments will be easy in the future.

That used to be true. Less so now with current rates and house prices.

(you won't even find trackers online, we specifically ask our broker about them)

up to 10% of the outstanding balance.

Forgot to add

PER YEAR

We needed to borrow a higher multiple than we could get with the high street banks so we used Strideup. My first thought was that their shared ownership model was a bit scary but actually it's pretty decent. They'll lend up to 6 times salary and you can use it for any house purchase but the last 20% is kept in ownership by them and you can buy bits of it off them at any time. If their part of the house decreases in value at any time they take the hit, but if it increases in value at any time you only ever buy it back off them at the cost of that share on the day you took out the mortgage. And you can buy bits of that shared ownership whenever you want without restriction. The monthly mortgage payment includes all rent on the remaining share so there is nothing additional to pay and it certainly feels similar in cost to the high street banks. It meant we could buy a house we knew we could afford but were struggling to show the other lenders we could afford. I don't work for them I promise. But I didn't even know they existed before we used them and a year and a bit on I'm really grateful we did. I plan to use our annual bonuses to pay down the share each year.

I have 28 years.

My plan is to reduce the term when I remortgage and possibly pay a lump sum off if we have surplus savings. Ideally I'd like the mortgage clear when I'm in my early 60s. I'm not overpaying at the moment as my savings account is a much better interest rate than my mortgage interest rate plus my house needs work which I'd like to get done before we remortgage and have a higher mortgage to service.

If you are paying into a pension, the pension lump sum may be enough to clear the mortgage.