Mortgage level - what percentage of yearly earnings?

[sak07]

Hi,

I am just curious, what is the industry standard when deciding if you can afford mortgage re-payments? When my parents bought their house it was about 2.5 times house hold income, is that still the case or has this dramitically increased? Im a couple of years off buying a place of my own but I am keen to get out of the rental market, as i see it as money down the drain. If I were earning £23k a year, what do you think would be the max that a mortgage lender would loan me? Also as I am starting out in my career, do they take age into account given the fact that my income will increase steadily each year or so (I hope)? And finally how do you go about obtaining a mortgage if you are self employed, i.e. do they take your last years income and use that to determine how much you can borrow from them?

Thanks very much for any info!!!!

 

[Mr. Charts]

The usual is 3.75 times income, so you'd be looking at around £85k self-certified. Not enough in itself to buy you a garage, much less a "studio" down here. Perhaps prices are more reasonable in Edinburgh?
I hope so as a whole generation has been priced out in the South East.
The weekend papers usually have more accurate info or try googling "Charcoal" or "thisismoney".
You could also phone your bank and ask them.
If you are a vet, doctor, dentist, lawyer you might get preferential treatment in anticipation of rising earnings.
If you intend running a brothel or casino in future, you might get government help as there are moves afoot to encourage and legalise such enterprises and you might be classified as an essential worker and receive a cash grant Apparently such businesses are viewed as cash cows by the next Prime Minister, Gordon Brown.
There seem to be slight but unreliable signs the housing market might have bottomed and interest rtates topped so now might be a good time to buy. However career/mortgage advice is not my forte so make up your own mind.

 

[trendie]

good advice Mr Charts.

I think you meant "charcol" as in "www.charcolonline.co.uk".
they are quite good.

 

[Mr. Charts]

Thank you trendie, my error was probably fuelled by a Chardonnay enhanced charcoal BBQ tonight.
I love winter barbies - the scent of burnt herbs in the cold night air.
Richard

 

[SOCRATES]

Richard, prices of properties have exploded in Edinburgh in recent years. I was there a few days ago and this is right across the board. Also the weather is horrendous up there, very cold, lots of strong biting wind, awful....but very jolly people, very hospitable and friendly, I found.

 

[LION63]

The perceived wisdom used to be that monthly mortgage payments should be covered by an individual's net weekly income ie. a person on £23,000 pa. would receive roughly £350 per week after tax and NI; if we were to assume that the mortgage is obtained at the rate of 6% pa. it would be worked out as
(£350 x 12 months x 100) divided by 6 = £70,000. Hence, the usual multiple was 3 times income.

One might say that times have changed and more aggressive multiples are more appropriate but prudence is always the key when planning one's long term future. The higher the multiple, the higher the default rate and the higher the pain when interest rates rise.

 

[DaveJB]

As I live 3 hours drive North of Edinburgh I can assure you the weather is balmy there, almost tropical - this is, sadly, a matter of one's local environment altering one's perceptions..... Prices are indeed high there, also Glasgow prices are not to be sniffed at, although moving away from the city centre south of the Clyde seems to work there - to find a cheaper part of Edinburgh I suggest you start slightly North of the Firth and enquire about prices when reaching anywhere the sheep outnumber the inhabitants.