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How Much Do You Realistically Need to Earn To Buy a House?

hero2008 Avatar
7y, 3m agoPosted 7 years, 3 months ago
Hey,

This is a bit of a random thread, and I know there is no right or wrong answer, but basically I am now getting to the stage where in the next 18 months - 2 years I will want to buy my own place, but quite simply I wanted to see what people's thoughts were on how much you should realistically be earning after tax each month in order to sensibly pay the mortgage, bills, car and household expenses, without leaving myself dangerously skint and miserable, along with the risk of getting into debt and losing everything.

I know the problems with getting a mortgage at the moment due to the credit crisis, and I know property prices are uncertain, along with the fact that interest rates are only going to go one way over the next few years, and thats up, so rather than talk about the variables I'm going to throw a scenario into the pot...............

I want to borrow £100k over 25 years, and lets assume that the interest rate will be 6% fixed, so monthly payments will be £651.89 a month. Can people give me an idea of what sort of salary that I would need to be earning (as a single person) to pay this back, along with other bills such as elect, gas, water, council tax, tv license, food, phone bill, internet, home insurance, car insurance etc etc as well as running a sensibly priced (i.e. cheap to run / maintain) car such as a corsa or focus or similar?

Also I will obviously need some sort of personal allowance, otherwise I will be a miserable hermit, but i'm by no means expecting to have like £500 a month to spend on myself. Realistically I would prefer an allowance of around £200 a month, which would include things such as going out generally, clothes, birthday / xmas presents for family, gym etc, i.e. not solely for eating out and boozing down the local, but at the end of the day I can afford what I can afford and sacrifices will be made where necessary.

Hopefully some of you guys can advise on some realistic budgets based on your own experiences.

Thanks in advance for any feedback x x
hero2008 Avatar
7y, 3m agoPosted 7 years, 3 months ago
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1 Like #1
I would say £35k to be ok...
1 Like #2
3x salary was always a good measure, problems are inevitable if you go beyond that. Don't forget that in the last 25 years interest rates on mortgages have pushed close to 15% at certain times.
banned#3
You're asking what sort of salary you'll need as if you can pick your salary based on what you need? Normally it doesn't work like that but your case may be different...
banned#4
jah128
3x salary was always a good measure, problems are inevitable if you go beyond that. Don't forget that in the last 25 years interest rates on mortgages have pushed close to 15% at certain times.


Hence him mentioning fixed rate.
1 Like #5
Pretty much all of my monthly bills come in at about £1100, includes things like petrol etc. Then there's car insurance, MOT on top of that.

So i would say you need to take home £1600 ish a month, just in case anything goes wrong or you want to actually do something!!

Not sure how much take home £1600 is per year, would be easier if there was two of you though!!

Hope this helps
#6
I think 30 - 35k a year you would do it quite comfortably
#7
master_chief;6636851
Hence him mentioning fixed rate.


I can read, but I don't really understand the point of such a hypothetical question. Interest rates absolutely won't stay static - which is why its wise to mortgage well below what you can afford when they are low to save for the inevitable times when they are high...
1 Like #8
Your best bet in my opinion is to speak to an independant financial advisor. They will work out your expenditure from your income etc and let you know what you can afford. It's a more realistic approach than asking what you'd need to earn. Obviously it depends on how much electric, gas etc you use, how much you spend on food etc. Good luck.
#9
Rather than worrying about how much you need to earn, concentrate on saving the deposit.
#10
jah128
3x salary was always a good measure, problems are inevitable if you go beyond that. Don't forget that in the last 25 years interest rates on mortgages have pushed close to 15% at certain times.


Thank you. I had heard that too... it's just that how high house prices are, it is becoming more and more unrealistic to afford anything based on 3x salary. I would probably be prepared to borrow 3.5 - 4 times my salary but would not be prepared to borrow anymore. I do totally appreciate what you're saying though. No point borrowing today and in three years time interest rates go through the roof and there is no money to pay the difference..........

master_chief
You're asking what sort of salary you'll need as if you can pick your salary based on what you need? Normally it doesn't work like that but your case may be different...


Lol. Yeah i take your point. It isn't quite like that. Basically, I know what I am earning now and I have an achievable target of what I should be earning in two years when I qualify, but I wanted to know if that salary is going to allow me to borrow £100k as well as actually afford to pay other bills and just generally live, hence I wanted to know other peoples opinions on what I should be earning.

sancho1983
Pretty much all of my monthly bills come in at about £1100, includes things like petrol etc. Then there's car insurance, MOT on top of that.

So i would say you need to take home £1600 ish a month, just in case anything goes wrong or you want to actually do something!!

Not sure how much take home £1600 is per year, would be easier if there was two of you though!!

Hope this helps


£1600/month is probably around £26k a year. Do you mind me asking, does your £1100 of outgoings include a comparable £650 for mortgage or rent? Just trying to understand on a like-for-like basis. Thanks for your feedback :thumbsup:

There may well be two of us when the time comes, but it is sensible for me to base my goals on being single and living on my own, and then if i'm with someone or have a housemate then its a bonus. Just don't want to be in a situation where I commit to a hefty mortgage that two of us can afford, and then I split up with someone and have the worry of a mortgage that neither of us can afford on our own.

jah128
I can read, but I don't really understand the point of such a hypothetical question. Interest rates absolutely won't stay static - which is why its wise to mortgage well below what you can afford when they are low to save for the inevitable times when they are high...


Agreed. Interest rates will not remain the same, but I just needed to give an example, otherwise the question would be very difficult to answer (even more so than it already is, as i completely understand it depends on individual circumstances and lifestyles).
#11
since the government are going to hold lending banks accountable for any bad debts now I should imagine the rules are about to change again for the worse.
#12
:thumbsup:
Banana79
Your best bet in my opinion is to speak to an independant financial advisor. They will work out your expenditure from your income etc and let you know what you can afford. It's a more realistic approach than asking what you'd need to earn. Obviously it depends on how much electric, gas etc you use, how much you spend on food etc. Good luck.


Thanks for advice. I probably will end up doing that nearer the time, just wanted to get an overview now, but you're absolutely spot on about the variables such as food, electric etc. I would estimate a food spend of probably £100 - £150/month inc. things like washing powder and household products. That's based on what I spend now - I currently house share with 2 mates.

Carley
Do you have a partner?

You probably need a household income of approx £1500 after tax to live comfortably?


That seems achievable :thumbsup:

g1bbuk
Rather than worrying about how much you need to earn, concentrate on saving the deposit.


I am, don't worry. I need to set myself clear targets though, that's why I'm thinking ahead. The deposit will come with hard work and determination............. :thumbsup:
1 Like #13
g1bbuk
Rather than worrying about how much you need to earn, concentrate on saving the deposit.


+1

You need to start as if your paying it now. Once you have paid your rent and bills save anything left of £1000 as you wont have that so you will get used to it.

TBH if your taking a £100k mortgage you need to be earning at least £24k (£1500 a month take home) just to get by.
#14
barky
since the government are going to hold lending banks accountable for any bad debts now I should imagine the rules are about to change again for the worse.


You're probably right. But thinking outside of the box, is that not likely to bring house prices down, as much fewer people will be able to borrow excessive amounts of money, and will need more sizable deposits? Arguably house prices are already 30 - 35% over inflated??
#15
My mortgage and life insurance comes to £520 per month, plus pay £80 per month to a family member who loaned us a little bit of money towards the deposit we had to put down.

That's the best advice tbh, a massive deposit will get you better rates
1 Like #16
I want to borrow £100k over 25 years, and lets assume that the interest rate will be 6% fixed, so monthly payments will be £651.89 a month


Not necessarily if you look around for deals - got myself a 2 year fixed today at 1.99%

jah128
3x salary was always a good measure, problems are inevitable if you go beyond that. Don't forget that in the last 25 years interest rates on mortgages have pushed close to 15% at certain times.



3 times your salary is the starting point for lenders, as others have said the bigger the deposit you can get together the better position you will be in
#17
fireheaven
Not necessarily if you look around for deals - got myself a 2 year fixed today at 1.99%




That's a great deal, 75% deposit? :p
#18
sancho1983
My mortgage and life insurance comes to £520 per month, plus pay £80 per month to a family member who loaned us a little bit of money towards the deposit we had to put down.

That's the best advice tbh, a massive deposit will get you better rates


Thanks :thumbsup: I better get my saving boots on...............

In addition to what I am already saving I have a company share scheme that matures in 18 months time. Basically each year I by 'x' number of shares and give me an extra 50%. I also get a few extra as a bonus if we perform well, and the value of the shares is frozen on the date that the scheme started, so if on maturity the price has dropped you can just take out what you have put in, and if they have gone up then you can sell them straight away for the higher price.

If the share price is 20% higher than the price they are frozen at, then I should be looking at £9k, otherwise will be looking at around £7.5k. That money along with some other savings should give me around £20k, which I will be using as a deposit. Its not going to be easy getting to that figure but I will do my best. Unfortunately that still won't be the 25% deposit recommended by the banks, but saving anymore will start to become unrealistic, as undoubtably house prices will climb faster than what I can save year on year :x
#19
fireheaven
Not necessarily if you look around for deals - got myself a 2 year fixed today at 1.99%

3 times your salary is the starting point for lenders, as others have said the bigger the deposit you can get together the better position you will be in


Yep, I know but not likely to get that sort of deal as a first time buyer, and I merely based my example on 6% because inevitably interest rates are only going to go up over the next few years, so no point basing my mortgage repayments on 2%, for them only to shoot through the roof if interest rates hit 6%.

Yep that seems fairish. I will probably be looking at 3.5 - 4 x salary. Not ideal but not horrendous either. Thanks for comments :thumbsup:
#20
£ 35,000 minimum per year but also need £ 40,000 deposit and about £ 5,000 for upfront expenses
#21
Banana79
Your best bet in my opinion is to speak to an independant financial advisor. They will work out your expenditure from your income etc and let you know what you can afford. It's a more realistic approach than asking what you'd need to earn. Obviously it depends on how much electric, gas etc you use, how much you spend on food etc. Good luck.


+1 and it varies so much between lenders and with new goverment advice proving affordability will be more important than 3x salary etc
banned#22
You could always do we what've just done and got a shared equity scheme if you're looking at a new build home. The home builder will give you around 25% of the house value towards your mortgage, the banks see this as a 25% deposit so you're much more likely to get the mortgage and you don't need to save the deposit (although the participating banks are just starting to ask for an additional 5% from the borrower). There is also the government led Home-Buy direct scheme for first time buyers too.

So if I was you I'd enquire about one of these schemes on a new development plot near you if there are any you're interested. As you already have enough to put an additional 5% deposit in then the bank would see your deposit as 30%, you'll get a decent mortgage rate on that and a higher likelihood of approval. You also get to buy now rather than in 2 years time so you're not wasting money on rent etc now. You can then pay back the the 25% to the home builder over a period of 10 years usually at a very low or no interest rate depending on when you pay it back I think. Alternatively you can just pay back the 25% equity when you sell the house.

Even if you're not looking at a new property it is worth considering buying now using shared equity then selling in two years and getting a home you originally wanted. That way you've not wasted two years on rent and trying to save up when you are in effect getting your deposit up front and paying back when you've already bought.

It's win win really from the buyer's and builder's perspective as they shift more homes and you get a mortgage without ridiculous deposit restrictions. I better add that you do own 100% of the home, as in it yours as if you bought outright.

They also help with a lot of costs incurred in the home buying process.
#23
kassy2005
I think 30 - 35k a year you would do it quite comfortably


I earn that but i am not comfortable :(

I have a 2 bed flat but i rent.
my rent is £800 a month and to be honest with ALL of my bills and outgoing i do struggle.
The main difference between me and the OP (I imagine) is that i have 2 kids to support as well (they don't live with me).
I guess if i didn't have this extra outgoing, then i would maybe be comfortable so i guess depending on where in the country you are (i.e for council tax expenses etc), it could be done on £30k - £35k.
Just make sure you have thougt of every single bill/outgoing payment you'll have to make.
Things like tv license, car tax/mot/insurance, electricity, gas, food, water rates, birthdays xmas, holidays etc.
It's quite depressing but will hopefully be worth it if you can afford it and manage to pull it off :)
Good luck!
#24
sn0ttyang3l
£ 35,000 minimum per year but also need £ 40,000 deposit and about £ 5,000 for upfront expenses


Are you like the world's worst mortgage adviser?

to the OP, instead of asking on here make an appointment with an independent financial adviser , than you will know exactly how much you can borrow

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