Not sure if this is the right place to post (if anyone can recommend anywhere else to post, then please let me know), but here's my question.
We're in the UK, and currently trying to get on the property ladder and are looking at getting a mortgage for the first time. Me and my girlfriend have an income of £20000 and £13000.
Can people tell us how much mortgage we could get, and hence spend on a house? House prices down in the South West are averaging at about £135000, so we're struggling a bit.
Is it possible to have three people on a mortgage, and if so, how much more could we get? How is the amount calculated? We could get another additional person come in with us with an income of £14000. How much more could we borrow?
Use a site such as Charcol online to get an idea, link along with a useful idea here -
It used to be 2.5 + 1 for joint applicants and 3.5 for single applicants, although traditionally, during housing booms like the one we're in a the moment, lenders relax these criteria (and tighten them during declines). Since inflation and consequently, interest rates, have been low & stable for more than a decade, many lenders now pay more attention to affordability of the repayments rather than the, now, highly restrictive lending multiples -
2.5 + 1 = (2.5 * £33,000) + £20,000 = £102,500. Which gives monthly IO payments of £427 at 5%
whilst I suggest someone could afford to pay out half their collective after tax income on the mortgage giving -
£33,000 gross = approx. £24,750 net, half of which is £12,375 (£1031 monthly) which, divided by 5% (5/100 = 0.05) gives a loan of £247,500. I don't think any lenders will calculate as generously as this, but it illustrates the principal !
A you can see, there is a vast difference between the different approaches, so it pays to shop around. The most important thing is not to overstretch yourself, basing your calculations on a reasonably increased mortgage rate of, say 7-8%. Any more would restrict your choices too much, and, in any case, if that happens then a lot of people would be f***ed, just as in the early '90s, so you can go with the crowd.
House prices are regularly discussed on uk.finance, so search the archive -
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Be aware that in a low inflation environment the debt will not disappear in significance as fast as in your parents day, when their salaries & house prices increased to fast it made the outstanding debt look relatively small and easily affordable.
Long term house prices look like rising due to insufficient being built, but within this, short term, house prices are very much subject to consumer confidence (see the Bank of England report). Have a look at some graphs of house price booms & busts through the decades and decide if you really want to buy now. I wouldn't, (if I had to, I'd buy small) as I feel that the high consumer confidence which has fueled this boom is not sustainable.
Links & graphs on my website -
I you want a really depressing picture try reading The Motley Fool - Property Markets & Trends board !
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(long term graphs at the bottom)
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- BoI -Historic correlation between consumption and house prices - Page 12 hth
I dunno what's been happening recently - I seem to be losing it. I've also been randomly accepting spell checker suggestions - words with a different meaning to that intended.
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