If your pre-tax income was 100k, what house price would you go for at today's mortgage rates?

[Littlehouseinthebigwoods8]

I've seen suggestions that generally you should look to spend 4 or 4.5 x your annual gross income on a house.
But with current mortgage rates what they are, this sounds unrealistic to me... Have I misunderstood something?

I don't know where you've read that. Most of my clients buy what they can afford/want in the area they live/want to live. We're increasing our mortgage next year to extend the house or we'll never get it done and we'll extend the term to keep the monthly payment within our base income but overpay from my bonus.

Thank you. We have a gross income of 100k, were offered a mortgage of up to 425k, and were looking to buy a house costing 365k. But we've done the sums and I think we can't afford it. On the surface, I'd have thought that buying a house for 365k should be doable on an income of 100k, but it seems it isn't.

I think it really depends what house you want. The higher-than-recent-years rates are making things a bit difficult. On a salary like that I recently bought a house at 600k with a 150k deposit. It's a painful £2770 per month repayment on my own but I wanted a 3 bedroom house in a convenient location so to me it was worth doing. I hope rates will go down in the long run but who knows. Or I start earning more!

I haven't heard the 'spend 4 or 4.5 times your anual gross income', but often hear that you shouldn't spend more than 1/3rd of your monthly net on the mortgage...

Working that backwards, £100k gross is around £5,300 net after a reasonable pension contribution. 1/3rd of that is around £1,750 - which would fund a mortgage of roughly £300k over 25 years (initial rate 5.1%).

A £450k mortgage would cost you around £2,600 a month, which is almost 50% of your monthly net, which seems too high to me. But I'm 52 and don't have to worrk about these things...perhaps it's the new normal? On the plus side, interest rate shoudl go down, and earnings hsouldgo up. So it wouldn't consume 50% of your net income forever...

I think it's because we have extortionate commuting costs, plus expensive life insurance... without these expenses it would probably be doable.

Around 250k. I would want a lot of monthly disposable income to enjoy life.

Also what deposit do you have and what type of home would you like? I see it very much as a long term thing - not an investment but creating a place that is going to be your home.

Our deposit is 10%

Gross household income is a meaningless measure in this context because one person on £100,000 will have a significantly lower income than two people on £50,000 each.

When i was young it was always 1/3 of your net income on mortgage or rent.

But i think in some parts of the country thats very difficult to achieve.

It's one person on this income

I'd look at how much you want to spend a month on repayments (with a bit of wriggle room) and work back from there. And then see if that will realistically get you somewhere you want to buy.

I think the 4.5 times gross income is the most the banks were willing to lend back when we applied 2 years ago to fund an extension. We were very comfortable with the leftover amount; we could save a good amount towards holidays, future projects and long term savings. At the time, we could possibly have been able to pay more like an extra £450 per month towards the mortgage but our bank would not go above the 4.5 times affordability.

This extra £450 has now been eroded by CoL and higher interest rates so I can imagine the 4.5 times gross income is possibly not valid anymore. We would just about afford the 4.5 times but it would be tight.

It will probably depend on other costs you have and amount of deposit.

Our household income is about 100k gross at the moment, but we also pay £1400pm in childcare fees (not including holiday care) which has to be taken into account when considering affordability.

I wouldn't want to be spending more than £1500pm on mortgage payments, which is about what we paid with our regular payment + overpayment.

We're buying at the moment and I'm basing it on the cost of repayments. I don't want to spend more than €1600 a month on our mortgage so that limits us to around 340k mortgage (we also have a 155k deposit so looking at houses up to 495k).
340k is just under 2 times our income, I agree with you that 4 times income feels far too high to me. I would feel extremely stretched and uncomfortable paying back that much a month.

I don't think it was recommended you spend 4-4.5x your salary on a house, but that that was the maximum banks would consider lending.

Affordability is the more important metric, and I'd want to keep my repayments to under a third of my income if possible

A LONG time ago, we were offered 4x joint income as a mortgage with rates around 4%.
We laughed, as there was no way we were spending that much.

I would work backwards. How much could you spend a month on repayments. What does that look like as a 25 year mortgage.
For us, 1500 would be easy, no lifestyle changes needed. 2000 would need some budgeting.
That's fairly similar to the 1/3 of income calculated at 1750 above.

Exactly this. No matter how much more you afford with the lower interest rates of the past, 4.5 times was the maximum banks would go. I bet this figure is lower now.

We'll have 2 years left of our current fixed rate, which is very low. We could afford the mortgage for a 365k property on this lower rate. But of course we can't predict how much it will go up when this rate ends. If it's anything like the current rates, we'd be stuffed.

The bank will only lend you 4.5 your income if you pass their affordability criteria. I don't know what you setup is, bu every dependent (kids & adults who don't have income) will reduce the amount you get lent. They also consider expenses like childcare, car loans etc. Not sure about commuting costs.
So I think the real ratio you could borrow would be far far lower than 4.5.

Look at your other commitments and decide how much you can afford to spend - at a push.

Work out what mortgage that represents over the time period you have left IF interest rates rose to 10% (ie stress test yourself).

That's what you go for. Or, at least, that's what I would go for. That way, I know if rates rise again I can withstand it.

Remember: the current rates are 'normal' rates. I would not buy anything hoping they will go down again.

We could afford it if we got a lodger, but then what's the point in upsizing to have more rooms if you can't use them..

4-4.5 times incomes was manageable for lots of people when rates were 1-2% but not anymore.
Obviously, commitments vary greatly. Is it 100k for a single person or 100k to support 2 adults and 3 children? It makes a huge difference to outgoings.
I would so what others suggest and look at approx. 1/3rd of net income and not bank on rates falling.

Just because you can borrow 4.5/5 times your salary, it doesn't mean you should

I think 4/ 4.5 x was the maximum, not what’s desirable!

If you can get what you want for less then buy the cheaper place, the only thing is that with stamp duty etc you don’t want to be moving every few years, so if it was a case of spending a bit more but then being able to stay for longer that might be a good idea.