Whats a realistic mortgage

Billbuck

Registered User
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Age: 35
Spouse Age: 38

Annual Gross Income: 92k
Bonus: 15%
Spouse Annual Gross income: 35k

Monthly Takehome Pay: 3700
Partner take home Pay: 2500

Employment (both): Private, full time. Both quite stable.

My Monthly Savings: 1500 - 2000
Partner Monthly Savings: 200-500

Home at last valuation: 445k
Original Mortgage: 305k
Outstanding Mortgage: 252k
Mortgage per month: roughly 1100
Interest Rate: 2.6 (5 year fixed)
Other loans/borrowings: none
Major bills: Creche: 1k pm
Credit cards paid off in full each month.
Savings: 65k
Investments: none
Pension: Yes, 15% of gross salary (roughly 1150 pm)
Life Insurance: yes
Number of Children: 1
Age of Children: 3


Question:
We want to move to a different area, but to do this will require taking out a much larger mortgage.
We are adverse to large amounts of debt, but what we can see from our social circle is that lots of people appear to be borrowing much more than we did. We want to see if we are overly adverse to debt and if we can reasonably take on a little more to allow us to move to an area where property is more expensive.

My calculations say:

Based on the 3.5x rule, a reasonable mortgage would be up to 445k.

if we sell for estimated value of 445k, this leaves 193k after clearing the mortgage.
Along with half our savings, this gives 223k.

I dont know how this fits in with borrowing patterns in Dublin. Average mortgage is reported to be around 300k, but I would like to know the median, as a huge amount of houses are 500+, and they are being bought by someone & my understanding is our combined salary puts us well above average for Dublin.

Could we potentially purchase in the 500-600k price bracket without overleveraging ourselves?
 
Buying a house in the midpoint of your range - you're putting 40% equity into the transaction - hardly overleveraged.

If you want to see how averse you are to debt, taking on a bigger mortgage is definitely one way to find out! If national or your personal economic circumstances become more adverse, you certainly won't be long in finding out how averse you are. Average mortgage balances or median mortgage balances are irrelevant. Ignore what your social circle appear to be doing too. Are they actually telling you how much they've borrowed? They could have had help from the BofM&D. They could have had a lucky inheritance from a bachelor uncle. You never know.

Are you going to have more kids? Will the homes you are looking at provide you with more utility, away from the serfs that you're concerned about in your other thread? That's the key thing here I'd say rather than the relative mortgage balances of the wider Irish citizenry.
 
Thank you for the objective response, its a difficult thing to find on the web!

WRT debt aversion, we had hoped to clear the mortgage relatively early, but it was always a stretch goal, dependent on circumstance.
WRT social circle, BofM&D definitely is a significant factor for some. Not all, but a few circa 600-800k properties in the most desirable locations in Dublin, but there is no point in comparing with them, the circumstances are too different. Others have not and just took on more debt that we did.
WRT kids, we may have another.
WRT more utility, it depends. Primary area of potential benefit is proximity to a secondary school, as we are not particularly close to a secondary school which will become an issue in 10 years. A house with a bigger garden, shed etc would allow for more freedom for hobbies, but its not a big deal.
 
Average mortgage balances or median mortgage balances are irrelevant. Ignore what your social circle appear to be doing too

I would agree with this, who cares what debt they have taken on unless your friends want to pay your mortgage for you ;)

You comfortably meet all the requirements in terms of 20% deposit and 3.5X income on a home up to 600k but do you need or want this extra financial burden. They are central bank limits, not targets, so again just because your friends may have maxed out the lending limits, it doesn't mean you have to and from the sound of it, you don't particularly want to.
If, for example, you went with a 400k mortgage on a 600k house, consider how an expanding family would impact this. As your spouse's earnings are relatively low compared to yours, it might not make sense to pay for childcare if/when number 2 or 3 comes along. In this scenario, you would be paying a 400k mortgage on one salary of 90-100k with 2/3 kids. You are probably prudent enough to manage this and have the mortgage back down to a comfortable level before this would happen but it is still worth considering

The good thing is that you have plenty of time to consider your decision as your main benefit is secondary school access. You could potentially sit tight and either save or pay down mortgage. Planning what your finances look like in 12-18 months would really give you a good idea of what you are comfortable with.

A few final comments:
  • Don't forget to budget for all of the costs involved with the sale and purchase process, between estate agents, solicitors and stamp duty, there is a significant chunk of cash that will disappear
  • Will a 500-600k house in the new area be ready to live in or will it need work. Are you sacrificing a nice new build for an older build that could cost you a lot in the long run?
  • Continue your research. If you have an area/estate in mind, check the property price register to see if they are going above the advertised prices. You might need to adjust you price range to allow for some bidding margin
 
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