GraemeS

Hi All,
We have heard that it is advisable to refrain from going over 30% of monthly income for mortgage repayments.

Is this 30% before tax or after?

Dorothy

The banks here don't really care about the % of your income. We were approved for WAY more than we could ever possibly afford.

The Bloke

Usually calculated on gross base income ie before tax and not counting overtime income etc.

walla

If one pays out more than 30% of ones net salary on mortgage or rent payments one becomes officially in "mortgage stress". In other words once one gets to this point one struggles financially, it's the latest terminology in Australia.

In other words pay more then 30% and one is skint or so they say.

Nowt to do with the banks lending criteria as the will lend you owt.

pumpkin blossom

It always supprises me things like this. We have been spending comfortably, with having holidays etc for the last year enough to pay the mortgage AND save to the equivalent of 60% of our income (after tax), and we are not on huge money.
Surely it would make far more sence to look at someones spending for say the last 6 months to see what sort of money they would actually have to pay a mortgage.

Geelong Gent

After tax, and its only a longstanding advisable threshold. Certain things make you take it with a pinch of salt:

Your young and your earnings are growing fast
You are developing the property for capital gain
Its temporary for a specific reason

PS If it was interest only I would forget the 3 points above and remember that estate agents or certain interested parties will swap from net to gross to suit their arguments ie that property is still affordable. Up to 98 it was very common to be talking in terms of "net" now you have to ask the author and they are not always forthcoming when pushed.

NickyC

That's exactly what they do here. First they calculate what you can afford to repay and then work out how much you can borrow based on that.

Basically they take your annual income, deduct any existing loan repayments/credit card repayments etc, deduct a (small) fixed amount for you and your dependents to live on and what's left is what you could (in theory) use for a loan repayment.

This usually translates to a huge loan amount that no-one in their right mind would take up - because if you did you'd have no spare cash whatever and you'd have a very sad lifestyle.

Wendy

Our mortgage is approx 40% of my OH's basic wage. He can get quite a bit of overtime if we need it though, which isn't very often.

bridie

Isnt this what's happened in the US and now banks are refusing to remortgage people once their fixed rate has come to an end?

I think it's scary what banks will lend.....

renth

I've heard 25% is the max you should go.

rancid

My husband is not working at the moment, and 54% of my wage is mortgage. We are doing alright, things could be easier but then we still afford a case of beer every week, and take out once a week, so we arent too poorly off!

esperanza

It's got to depend on what other outgoings you have and how much your salary is. E.g. if you earn a million dollars a year (after tax, for those who are interested) then you could easily spend 80% of that on mortgage and still have plenty left for food & cleaning the pool!
More realistically, I have friends who have taken out mortgages on top of student loans, graduate loans, car loans, etc and they sometimes run out at the end of the month. On an identical salary, but without the graduate loan & car loan, I had a fair bit more to play with every month.

Each individual needs to sit down with their last few months' bank statements and see what is left every month. Take current rent off, set a couple of hundred aside as a buffer (interest rate rises, the inevitable 'once-in-a-while' expenses that seem to happen every month) and what's left is what you can afford. And that's ALL! No matter how much the bank says you can have. They aren't interested in you beyond the profit they will make from you when you pay extra interest on your debt, you have to look out for yourself.

northerner

We've just bought a house and will be at about 30% of our gross income but we still intend to overpay as much as possible and still go out and do everything we've been doing for the whole of this year (which is a lot!).

I think you just need to sit down with a pen and paper and SERIOUSLY AND HONESTLY calculate your average expendature - go through the past 3 months bank statements rather than pulling figures out of your head.

If you calculate that, put in some contingency, and can still afford the mortgage and have enough to have a life and get out and enjoy yourself then that's the main thing - not some arbitary figure thought up by people in suits earning $250k a year and driving porsches.

Graham

Sandra

We paid 30% of our net income in UK on mortgage and that was because we upsized two years before we moved.

Aus we wanted to live in a particular area and at one point were paying 45% of our net incomes on the mortgage (which we also increased by 13 years!) but we planned the sacrifice for a couple of years knowing the restart process would end at some point and our incomes should improve. We may have come unravelled very quickly if a job had not worked out and it added to pressure in the new country very much.

It was a calculated risk and we had to downscale other things we did. For us it worked out, I think all the advice on here is good planning - take YOUR income and plan YOUR needs. We also bought the house five years ago planning to live in it for 8 or so plus, we have now just planned another 8years and spent some money on kitchens and updating things.

Cheers

killamarsh

How long is it recommended, from experience, to be in employment in order to get a mortgage? That is a an employee and not self employed.