How much is a reasonable mortgage?

[DieScum]

How much do you think is a reasonable mortgage for a typical IT person. Bearing in mind that IT is generally well paid and there is a large flexible contracting market.

I'm currently permie. Although have been contracting in the past and imagine I will in the future. A good contract rate for me would 500 a day but could be as low as 250.

I'm 29. Currently as a permie I'm on 57.5 basic, 6.5k car allowance and random bonuses of around 5k. So my take home is 3.2k plus a bit of bonus. My job isn't exactly secure and I anticipate moving jobs, having periods without work and periods on high income over my career. I'd also like the option not to work primarily for money (I suppose retire early or just move out of IT) while I have plenty of life left.

My girlfriend is on about 45k with 2.5k take home. She works for the NHS so is reasonably secure.

Between us we are taking home 5.7k. Renting at the moment.

Things I can see in the future would be moving to a single salary due to having a family or periods of unemployment.

Now a 300k mortgage would be about 2k a year. Which, even if things go pear shaped should be manageable. Might have to switch to interest only, take in a lodger, live on rainy day funds for a bit, work in bar if no well paid work.

But is 300k not ambitious enough? We've got 50k deposit and, looking to buy in the next two years or so as amrket settles, that could rise to 100k +.

The kind of house I would really like to live in starts at 500k going up to a million+.

If prices drop 20% then the currently 500k + houses are starting to come within the price range. For instance, I could get a mortgage of 450k (3 grand repayments), 50k deposit and then other savings to cover stamp duty, fees and rainy day fund.

But is that being over-ambitious? Is it crazy to commit to 3k a month repayments.

So what do you guys think? When you were buying a house did you stretch as much as possible or keep it more manageable? In the flexible, but well paid IT world, is it sensible to take on very large commitments.

[ChimpMaster]

There are only 2 of you - if I was in your shoes I would :

1) Keep saving. Wait a few years for property prices to fall 40%
2) The just buy a regular house to live in. You will be able to get plenty of house for a price of under £300k
3) At the same time buy an investment property with the amount of cash/mortgage that you would have otherwise spent on a more expensive house for yourself.
4) Wait a few years for prices to rise.
5) Get married, have some kids (or vice versa).
6) Upgrade to bigger house, which you will need by then.

A mortgage of £300k is a horrendous burden to put you and your girlfriend under. I have mates with mortgages of £220k and they worry day and night.

[Lewis]

There is no simple answer to your question, it depends upon your risk profile and your lifestyle. You don't mention at all how much you spend on food, going out etc.. Only a financial advisor will go through all this with you. I know people who strive for a zero mortgage and other who strive to always borrow to the max in the hope of making money on increasing property prices. There is of course a chance of negative equity over the next year or so if you really push your borrowing, which has not been the case so much over the last decade.

I personally take the worst case scenario and make sure I can cover that. So that would be being able to cover an interest only mortgage + household bills (cutting back to minimum) with one salary (wide doesn't work) at an easily achievable contract rate (even in bad times). That means in normal times you can have nice holidays, nice car, don't need to cut back and can overpay your mortgage and not worry about contract rates changing. Others will have a completely different strategy!

That said, if we had the chance to buy our dream-forever-home we would probably push the boat out and take a bigger risk by borrowing based on good contract rate. There are so many factors to consider if boils down to a personal choice.

[ASB]

What's a mortgage?

In truth whatever you feel comfortable with is probably best. FWIW (sod all probably) back in '91 I borrowed 164k @ about 12%. Repayments were 1900 PCM. Balance of 50k and moving costs were covered by wiping out the stash of cash we had accumulated. Within about 6 months income had gone from 6 figures to nil. Focuses ones mind.

Everybody told me it was a completely mental decision. If I hadn't taken it I wouldn't be late forties living in a house I like, taking it relatively easy and able to get by comfortably on the pittance I now get paid. But it did get close to going very pear shaped.

ultimately you have the benefit of time which enables you to potential recover from any disaster.

[blacjac]

If between you you are taking home nearly 6k a month why don't you just save up and buy one outright?

[DieScum]

I know my ideal dream house and it is definitely at least 500k. I'd just love to get one of them and bring up a family there... but I'm not sure if that is realistic. I may have to move for work to keep a decent income or the payments might just not be affordable.

Anyway is there such a thing as a dream house? I'm sure I'd be just as happy somewhere more modest and without a huge mortgage. But you only live once. Would be nice to do.

I probably am leaning more towards stretching as far as possible but with a large rainy day fund. With 50k in an emergency fund we could pay even a 3k mortgage and pay the bills for over a year. That's assuming no other income at all.

At the moment my outgoings aren't really much. Everything is pretty much discretionary apart from rent, council tax and food. If things got tight I'd cancel sky, eat out less. I don't even have a car although my girlfriend does.

[chicane]

If between you you are taking home nearly 6k a month why don't you just save up and buy one outright?

A mere six years of saving for a 300k house if you manage to put away 4k a month. Long time in anybody's life.

[Fred Bloggs]

A mere six years of saving for a 300k house if you manage to put away 4k a month. Long time in anybody's life.

A LOT less than a 25 year millstone. Errr sorry,... mortgage though.

[Peoplesoft bloke]

.......Now a 300k mortgage would be about 2k a year. Which, even if things go pear shaped should be manageable.

Dang right that's manageable -where are you getting such a rate?

[pmeswani]

Dang right that's manageable -where are you getting such a rate?

Yep. I'm wondering the same thing. Will they write off the debt in 150 years time?