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mortgage multiples

 
#1 mortgage multiples
14/03/2007 11:18

anon

quick poll of all you wealthy consultants

what multiple of your salary is your mortgage, I'm currently 2.5 but thinking of doubling this (can just afford if I get some interest only - gives me 25 years to find the shortfall)

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#2 RE: mortgage multiples
14/03/2007 11:58

Realistic Consultant to anon (#1)

Consultancy is a sector that is particularly at risk in an economic slowdown and recession. For this reason I'd be loath to acquire outsized debts during the good times ( which these are) if it means that I would be stressed out 5-10 years later when interest rates are high, jobs are scarce and properties impossible to sell. I'm sticking with about 2.8 times basic at the moment.

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#3 RE: mortgage multiples
14/03/2007 12:53

Mike Control to Realistic Consultant (#2)

And considering the interest rate is going up, and the inflation in house prices is falling, only a fool would opt for a 5x or interest only mortgage at the moment.

At least wait to see how the sub-prime stumble in the US affects the rest of their market.

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#4 RE: mortgage multiples
15/03/2007 01:03

Agree to Mike Control (#3)

Sensible words Mile

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#5 RE: mortgage multiples
15/03/2007 10:44

rubbish to Agree (#4)

I'm very happy for you, being in a position where you can afford a house on only a 3x multiple. Some of us are not in such a great position. We are earning less than 40k a year in London, with a lot of student debt and credit cards. Try getting a house in that situation.

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#6 RE: mortgage multiples
15/03/2007 11:26

Mike Control to rubbish (#5)

Actually, I am not a high-flying consultant earning mega bucks, I don’t even own my own house.

I was just expressing my opinion, that it would be silly to put yourself too deeply into debt when there is a possibility of your mortgage going up, but your house price stagnating. I am in a similar situation, looking for a flat in London to buy, and though I’d add my two cents…

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#7 RE: mortgage multiples
15/03/2007 11:33

Da Bomb to Mike Control (#6)

There is no law that says you have to buy a house if you can't afford it at a sensible multiple of your salary. This obsession with house buying is a particularly British phenomenon. People in Europe can go through entire lives just renting and it is entirely possible to rent long term.

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#8 RE: mortgage multiples
15/03/2007 11:40

jim to Mike Control (#6)

To "Rubbish",

Stop your whining! You sound as if you think you're the only person in london with a student loan. What is wrong with renting?

People like you are one of the causes of the housing boom - desperate to buy and supported by irresponsible lending practices. Find yourself a nice place to rent, start saving and wait until house prices slow down a bit!

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#9 RE: mortgage multiples
19/03/2007 19:47

rubbish to jim (#8)

I'm going to stick up for rubbish here - why pay £600 a month rent, sharing a house and lining the pockets of landlords when you can put that money instead into a house, an investment, and supported by a loan at a reasonably low rate?!

I'm paying around 600 a month rent. Now if i were to get a 25 year repayment mortgage for around 5.5%, that £600 could almost get me a mortgage of £100k. Now, I buy with my girlfriend. She's on similar money. We can get a mortgage of up to £200k (some banks don't use smaller multiples for second earner). This is a 200k house, and our money is now invested.

All well and good. But on earnings multiples, this is 6 times salary... but i'm spending it on rent anyway.... so tell me, what's the problem if i've proven I can comfortably afford this due to my lifestyle? I'm a little offended by the statement that people like me are pushing prices too high for everyone else... surely we're simply just doing the sensible thing and not throwing money away. People that don't take opportunities like this, whilst being aware of the possible risks, are the idiots and problem makers by not maximising money, not me.

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#10 RE: mortgage multiples
19/03/2007 19:51

anon to rubbish (#9)

fine until house prices fall and you have negative equity

remember interest rates hit 16% in the early 90s

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#11 RE: mortgage multiples
19/03/2007 20:06

dl to rubbish (#9)

@rubbish: 200k is 6 times income? You and your girlfriend are both on £18k each and you work in consulting? I find this hard to believe.

The rest of your post I "kind of" agree with. Particularly the issue of "if I can pay the rent, why not a mortgage". But many lenders have moved off multiples, and work on affordability basis (i.e. does the cash flow make sense).

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#12 RE: mortgage multiples
19/03/2007 20:54

Oh Dearie me to dl (#11)

<so tell me, what's the problem>

Where to start.

Very simply your rent is not a loan and it is strictly a short term comitment ( based on the length of your lease). Your rent will not go up with rising interest rates but your mortgage certainly will ( like any other loan). You may earn 20K and afford a 7200 per annum annual rent but if hard times hit you can easily switch to a lower rent property. Not being able to keep up mortgage payments is a different kettle of fish altogether.

The basic error is that you are assuming that the current conditions of low interest rates, easy employment and general economic stability will always continue. You only have to look at history to realise that its the shocks that cause major distress to people who over-leverage.

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#13 RE: mortgage multiples
19/03/2007 21:12

Although... to Oh Dearie me (#12)

Can you not simply move out of your house if times become hard, into somewhere with cheaper rent; and then rent your house out to those who can afford it.

That way you'll get your tenants to pay off your mortgage, and in the mean time you're paying cheap rent.

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#14 RE: mortgage multiples
19/03/2007 21:27

dl to Oh Dearie me (#12)

@ Oh Dearie me:

While it is true that your rent is not a loan, and as such if I'm lending you money I'd like to have some confidence that you can keep up the payments, I disagree with your other observations.

1. There are fixed rate mortgages - sometimes fixed for the very long term (15+ years)

2. Your rent WILL go up with interest rates, since most landlords are profit-driven owners that will compare yields on assets and act accordingly. It may move more slowly, but move it will.

3. You cannot always move to cheaper accommodation (without falling into some form of council/subsidized housing - but you can do that having had your home repossessed too).

4. From the mortgagee's point of view, not being able to keep up mortgage payments is not substantially different from defaulting on paying rent - particularly if you have minimal equity in the house.

5. Given that the average house is held for over a little more than 3 years, most mortgages are relatively speaking short term committments too.

Multiple of income rule of thumbs were devised a long time ago for a rather different market, which is why many lenders are moving to other ways of assessing people's suitability for mortgages.

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#15 RE: mortgage multiples
20/03/2007 09:21

Mike Control to dl (#14)

Fixed rate mortgages for 15+ years?? I’m not an authority on the subject, but as the banks withdrew all their fixed rate products when the B of E raised the interest rate by 0.5% recently, I find that hard to believe.

And surely rent prices will be more reliant on supply and demand than a landlord meeting his mortgage repayments? It’s better to get 80% of what you wanted than 0%.

But in reply to earlier posts, I would have thought that if you are paying that much on rent anyway then there should be no problem with getting a mortgage. I suppose I naively assumed that a 5x mortgage would mean paying out so much a month that any increase in repayments would push you over the edge. If you can easily afford it, then you can easily afford it. And surely that is that.

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#16 RE: mortgage multiples
20/03/2007 09:30

hh to Mike Control (#15)

Also bear in mind that when the wife has kids your income will fall significantly...

Furthermore, your actual disposable income (i.e. what you have left to spend each month after overheads such as mortgage payments, pension, bills, loan repayments etc have been deducted) could easily fall to a tenth of what it was when she was working...

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#17 RE: mortgage multiples
20/03/2007 18:40

dl to Mike Control (#15)

A quick net search came up with 3 @10+ years (Principality, Morgage Express, Nationwide). I know Barclays/Woolwich have a 15 years fix offer, though I don't think it's very competitive. When you see that banks "withdraw products following rate increase", generally what they are withdrawing is the rate, rather than the whole deal. The product will be repriced and put back onto the market with a higher rate within a few days.

Guess who's been remortgaging in the last six months? ;-)

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#18 RE: mortgage multiples
20/03/2007 18:58

The Top Consultant to dl (#17)

Fixed rate products invariably cost you more over the long run. Certainty carries a premium, you know.

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#19 RE: mortgage multiples
20/03/2007 20:15

M Keynes to The Top Consultant (#18)

That is a truism, but you don't tend to keep them over the long run. Most people select shorter term products, and may subsequently remortgage and/or move house.

It is about calling the market or taking a gamble. I am currently on a fixed rate that is a good 100-125 basis points less than anything currently, available fixed or floating - because I was of the view that rates would increase. It has cost me significantly less money overall than if I had opted for a floating rate, albeit with slightly higher payments in the first few months until floating rates overtook it.

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#20 Fixed rates
21/03/2007 02:12

dl to The Top Consultant (#18)

@The Top Consultant:

The point about fixed rates was my response to: "Your rent will not go up with rising interest rates but your mortgage certainly will" by Oh Dearie Me.

If you choose them right, you can save money over the (re)mortgage term, but that was not the issue. And at any rate, for some of us the certainty may be preferable to the potential saving.

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#21 RE: Fixed rates
21/03/2007 09:36

The Top Consultant to dl (#20)

Personally, I have an offset mortgage and pay a fixed amount by standing order into my offset current account each month from my main 'working account' (which I have with a different, more convenient bank). I overpay by around £200 each month so do not directly notice any fluctuations in interest rates. Plus, I'm building up tax-free savings which I can withdraw at any time.

Different approaches suit different people I guess. If you can get a good deal on a fixed rate mortgage then why not? I know offset mortgages are generally a little more expensive than 'normal' ones, but for me it's worth it because of the liquid savings issue. :-)

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