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Should I borrow five times my income?

In years gone by, you might have struggled to find a mainstream mortgage lender willing to lend more than three-and-a-half times your income.

If you were part of a couple, you might have pushed it to three-and-a-half times the higher income plus once the second, or three times your joint earnings.

But, with so many lenders now competing for your business, it isn't difficult to find one willing to give you five times your annual earnings (and two or three will even consider giving six).

So whereas before, someone on £30,000 would have been limited to borrowing £105,000, they could now quite easily get £150,000.

But borrowing this much is very expensive.

The monthly payment on a £150,000 repayment mortgage at an interest rate of 6 per cent is more than £966 a month.

That's an awful lot of money to part with out of a take-home income of around £1,900, especially when you have council tax, insurance, utility and food bills to pay.

It's also very risky.

If the interest rate on your loan rose to 6.5 per cent, the monthly payment would increase to £1,013.

At 7 per cent, it would be £1,060; at 8 per cent £1,158, and at 10 per cent it would be £1,363.

You may think mortgage interest rates could never rise that much, and let's hope they don't – but no-one can know for sure.

As anyone who had a mortgage in 1989-90 will tell you, in those days people were paying interest rates of 15 per cent and above.

But even if rates don't rise, what if you lost your job or were too ill to work? How would you manage then?

State mortgage help is very limited – and if you can't keep up the repayments, your mortgage lender can take possession of your home.

To find out more about state help, read What if I get into financial difficulties?


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Read on about Mortgages for First time Buyers

Process / Flow Chart of What Happens

Intro / What you're getting into

Buying your first home

Be careful out there

Don't just grab the first mortgage you can

Problem: having enough money

100% Mortgages for First Time Buyers

Should I borrow five times my income?

Buying as a couple

Already own separate homes?

TIPS for First Time Buyers

Having problems as a First time Buyer? Read some Solutions

UK Government Help, HomeBuy and Key Workers Schemes

 

Read On / Mortgage Guide

Choosing a Mortgage

UK Mortgage Types

UK ReMortgages

How to get Your Mortgage

What is a Mortgage in Principle

Costs and Fees of UK Mortgages

Mortgage Buying TIPS

Calculators

Summary of All UK Mortgage Types

 

Read On

Guide to Home Buying for the UK

UK Mortgage and Home Insurance

UK Life Insurance Guide

Glossary of Mortgage Terms

UK Mortgage News

 


 


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Guide to your First Mortgage and Home

What you're getting into

Be careful out there

Don't just grab the first mortgage you can

Problem: having enough money

Buying your first home

Buying as a couple

Already own separate homes?

Summary



Full Mortgage Guide



The step by step guide on how to get a mortgage with special tips

Cost of a UK Mortgage

Your Mortgage TOP TIPS



 

 

 

 

 

 





 

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