Can I afford this mortgage?

P

prince2008

Registered User
Messages
29
This isn't a money makeover question......

We have been approved for a mortgage to the value of appros 360K. I have seen a house that I really like which means the value of the mortgage would be approx 310K - the monthly repayments on this is about 1700 per month - dont think this includes our mortgage interest relief. Our net income is approx 5K per month. Would our mortgage repayment be too high a percentage of our net income?

We will have no other debts(current debts will be cleared shortly) however, we will probably need to take out a car loan in the next year or so. We have no kids and our jobs are secure as far as we can tell but who knows!

We are both FTB so maybe I'm just a bit apprehensive at such a big debt but we really do want to buy somewhere as we have been renting for years! The house prices in the area have fallen considerably in the last year and this house is cheaper than others in the same area.

Presumably our mortage company think we can afford it - as we are approved for more than this but what do others think?

Any views?
 
Re: Can I afford this mortgage????

Have you prepared a budget (simple xls) based on this mortgage (net of interest relief) plus all other costs that you may not have had as a renter - management fees, insurance, waste charges, maintenance etc - include EVERYTHING, 'annualise' where necessary e.g. TV licence, car running costs, motor insurance & tax etc.

Then when you have completed it, see what impact an increase in mortgage interest rate will have on your budget - it seems reasonably likely to increase by .5% this year, but you should allow for a bigger increase e.g. 3%.

Also allow for the upcoming car loan, and consider what the impact of children would be - child care costs, potentially reduced pay for maternity leave etc.

All of that aside, are you 'happy' to purchase now, with the knowledge that prices may continue to fall possibly resulting in negative equity.
 
Re: Can I afford this mortgage????

Hiya
Yeah, I have prepared a budget and tried to work out monthly/yearly expenses. I have factored in as much as I can think of. I think we can manage it. However, obviously as it is such a big commitment, I have very slight reservations. Our mortage repayment would be abt 30% of our net montlhy income? How does this compare to other peoples? Is this about the average??

As to wheter I am happy to buy now - I think I am! I am aware the prices may fall further - however, negative equity will only affect me if I want to sell in the next couple of years. Hopefully, I won't have to or want to! THe prices have fallen a fair bit already and the current price is cheaper than other properties in the area. Its just a chance i have to take.......
 
Re: Can I afford this mortgage????

It is mostly nerves Prince2008, I haven't any figures to back up my guess but I would be surprised if many FTBs aren't paying out 30% of their income on mortgage (that looks confusing, what I am trying to say is I doubt you are alone).
What percentage of your income are you currently paying on rent? Chances are it is a fair chunk of your mortgage.
Are you currently saving money? You might want to reduce your savings for a while until you settle into paying the mortgage.
Don't be too worried if you find yourself a bit cash-strapped (or even in the overdraft) for the first while, it takes time to re-adjust.

As you say negative equity only comes into play if you seek to sell the house and your mortgage exceeds the value. I am going to guess that you intend to live in this house a few years so I would say that it should not be your first consideration in this.

As rmelly has indicated, you need to consider your budget carefully going forward. It will be a struggle, I don't know anyone that hasn't found it difficult but generally people get back onto an even keel after a while. Having a good budget will make that sooner because you are prepared.

One thing I do notice is you refer to having to get a car loan next year. Whatever about house prices dropping, car values certainly plummet by comparison. Borrowing on a depreciating asset is never a good idea, especially one you know will depreciate. Do you really need to borrow for a car? You would be better off saving towards a second hand one in maybe two years than getting a loan next year for one.
 
Last edited:
Re: Can I afford this mortgage????

Thanks so-crates, i guess it is just nerves! We are currently only paying about 13% of our net monthly pay on our rent so we will be paying over double on a mortgage. At this stage, I'm just sick of paying rent and paying someone elses mortage - I've reached the stage I just want a place of my own......... I do plan on staying where I buy on a long term basis so negative equity shouldn't come into it.

I've worked out budgets etc and realise I will have to cut back - we currently have a very good standard of living whilst saving and probably spend a lot of money on some things that we could easily cut back on - needless spending!

About the car, I've had second hand cars in the past (ones that I thought were good!) and just ended up spending a fortune on repairs etc. I've usually borrowed for these, and then when I've had to sell them cos they were letting me down, I've usually had to pay off my loan out of my savings. I bought my current car when it was new and have only had to pay minimal on maintence - at least when the loan is paid off, even if I only get a grand or two for it, its mine. Maybe, I'm crazy thinking like that - who knows!
 
Whats the length of the Mortgage? What are you paying back to the bank in total?

People are mad just to looking at monthly repayments. If your mortgage is 30-35 years you will be paying back the bank more in interest than the current value of the house!!

If you can't afford repayments over 20-25 years then you could argue you can't really afford the house?

30-35 years have become the norm, but that's not really a good thing for the people buying, however its great for the banks!
 
If you've bought your current car new and have maintained it, why don't you just hang on to it until you have saved enough to buy another?
 
Re: Can I afford this mortgage????

prince2008 said:
About the car, I've had second hand cars in the past (ones that I thought were good!) and just ended up spending a fortune on repairs etc. I've usually borrowed for these...
Click to expand...

I was suggesting buying from savings rather than from borrowings. I wouldn't borrow for a second-hand car any more than I would for a new car. The reason I mentioned second hand cars is purely because they are generally cheaper!

I would disagree with you Mr DT, to some extent at least. Yes borrowing over a longer term incurs a far greater interest charge. However, to say that a mortgage is only affordable if you can repay it in 20-25 years... why that number? Why not 10-15? Why not 15-20? A 10 year mortgage will be much cheaper overall than a 25 year so should you only borrow if you can afford those repayments?

Obviously the way to overcome this problem is to start overpaying your capital as soon as possible, this will reduce your term and your interest bill.
 
Re: Can I afford this mortgage????

so-crates said:
However, to say that a mortgage is only affordable if you can repay it in 20-25 years... why that number? Why not 10-15? Why not 15-20? A 10 year mortgage will be much cheaper overall than a 25 year so should you only borrow if you can afford those repayments?
Click to expand...
Seems to me that this was simply a subjective/personal opinion as opposed to some immutable rule:
Mr DT said:
If you can't afford repayments over 20-25 years then you could argue you can't really afford the house?
Click to expand...
 
Re: Can I afford this mortgage????

so-crates said:
:) True, but it is nonetheless arbitrary.
Click to expand...

It's an opinion, thats all.

I feel its good to highlight to people that they need to look at the REAL cost over the period of the loan rather than just the monthly repayments.

In my opinion if you can't afford to reypay your mortgage over 25 years then you can't afford the mortgage in the first place.

I know this is not the norm nowadays but I'm trying to start a new trend in these days of the Celtic Tortoise.:D
 
So a single person shouldn't be able to get a 300k mortgage unless he/she is making 95k plus?
 
Sounds about right......

3 to 4 times your income will become the norm during the Celtic Tortoise years! (in my opinion!)
 
Re: Can I afford this mortgage????

groom said:
Why do you have to take the chance?
Click to expand...

Groom, I suppose I don't technically have to take the chance - its more like a chance I'm willing to take.

I've spent the last couple of years listening to people telling me I'm crazy not to buy (luckily I didn't listen in the last 2 years!), and now when I've made the decision, people are telling me not to. My point is that no-one know what will happen with the property market in the future - but I'm willing to take the chance now at this point in my life........
 
I have to ask you why you want to buy in a falling market? Why buy now when you are likely to be able to buy it much cheaper in 6 months or in a years time. Why pay more now and have a higher mortgage than in the future?

Also when you are buy the house most of the mortgage payments in the first few years are interest payments to the bank. From the figures that you have given the interest that you will be paying to the bank will be substantially more than the rent you are currently paying and you are also taking on the risk of your property going down in value. If you carry on renting you will be able to save more and you will not lose your capital through the falling market.

You also have to consider how safe are your jobs. With the downturn in the economy will both of you be able to hold onto your jobs?
 
I think I saw somewhere that historically people tended to pay 25% of their incomes on mortgages. Given average incomes are €35k p.a. and the average mortgage has been €300k, the average couple will both have to work generally paying over 30% of their net income on mortgage repayments. if interest rates rise this figure becomes even worse.

If you believe interest rates are at their long term average then 25% of net income is probably a reasonable amount to pay on a 20-25 year mortgage. You'll have to consider whether you can continue to afford this in circumstances such as increasing interest rates, higher costs from kids, one partner staying at home, etc.
 
You must log in or register to reply here.
Back
Top