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Briano88

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Hi,
I have a family. Wife one baby girl and one on the way. I have wage of 44,000 for next two months then I change position and get 37000 but public sector looks like getting pay cut soon. Wife does not work. I was offered 290,000 mortgage if I use 30,000 savings/family loan as deposit which makes 320,000. Broker thinks I can get 360,000 house down to 320,000 if I offer. Should I go for it now or will the market go even cheaper? The recession has only begun but some are saying to me the housing market will bottom in 6 months but I cant equate that if the recession will last a few years. Bear in mind I can get a higher mortgage in next two months as I am on a higher wage and when I get lower wage I can still afford repayments.

Advice is much appreciated.

Thanks a million.Brian.
 
you will be on 37k and paying mortgage of 290k on ur own!!! thats madness
 
Sit tight.

You will be using up all of you savings
You will be left with less than €1500pm to live on after the mortgage

I'm surprised the bank is offering over 6 times earnings. This is definitely on the limit of what you could afford on €44k let alone €37k
 
i dont get it
290k mortgage will roughly be 1400 per month
44k will give a net pay of roughly 2800

with 2 dependants and one more on the way, car and bills, u expect to be able to survive on 1400 a month left. impossible
 
I am a lone parent of one child on a salary of €40k. My mortgage is €66k. I don't smoke, drink or have too many nights out and I can just barely afford to pay my mortgage plus all my other bills.

I seriously don't think a family of four could manage a mortgage that big on that salary. I wouldn't like to see you getting into serious debt.

Why don't you wait until house prices come down some more?
 
Well when you put it like that. ****. My net on 44k is 3200 cos of tax credits etc. My rent now is 1300 so when the broker said the 290k mortgage after some relief thingy came to 1038 p.m. I figured I could afford it with 300 to spare[compared to current rent] even considering my wage is coming down in 2 months, I thought it better to pay the money toward mortgage than to landlord in the coming year but some people convinced me to hold off that it will continue to decline[much more than the 10k I will pay in rent this year so...] I hope that that 300k house for sale now will be 250k next year and that it will be worth the wait!

Much appreciate all the advice.

Briano88.
 
Given your details, I suspect it is just barely affordable. In theory. But the figures you quote from your broker assume you're on a 30 year term, and s/he's not adding in the costs of house insurance and life assurance [factor in about another €100 per month]. In addition, you'll be responsible for any repairs or upgrades - which may be minimal, but may not.

I'd say to assume your outlays, not including any furniture / appliances you need to buy, would come to much the same per month. But you'd be in very long term debt and you bear a great deal of the risk of things going wrong (even just niggly little things that aren't worth using insurance to sort out).

Ask yourself: could you afford, having spent all your savings, for anything bad to happen? You, wife or child to be ill? Car to break down? You'd be treading a financial tightrope with no safety net.

I think you are probably wise to wait for the time being (and particularly since you're facing a paycut). But consider negotiating on your rent: rents are definitely falling, so if you're a good tenant your landlord may agree to a reduction in order to keep you. You can always save the extra for your dream house!
 
On that income you would also qualify for Affordable Housing. I know it may not be suitable or in a suitable location for you, but some better Affordable Housing deals might come through in the next few months so it's worth holding your fire for now. We are househunting as single income family, 2 kids, on 40k and we can barely make ends meet (in fact we don't make ends meet on that - went overdrawn in Nov, Dec + Jan and had to dip into savings) and that's only paying rent of 700 per month. Just because you are offered a high mortgage does not mean you can afford it.
 
Briano88 said:
Wow, thats illuminating. Why not 40 yr? what one to get?
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Do you still want to be paying of a mortgage in 2049? what age will you be then?
Example,
300k at 5% 25yr means you pay interest of 225k
300k at 5% 40yr means you pay interest of 395K

That is a huge difference and you want to pay as little interest as possible. look if you can afford the house over 25-30yrs, if you have to raise it to 40yrs, then you cant afford it.

From your figures above it will be to tight and you will only put yourself and your family under more pressure. The market is going to continue dropping for the next 2 years without a doubt. Rent now and save as much as you can, it makes the most scene.
 
Briano88 said:
Wow, thats illuminating. Why not 40 yr? what one to get?
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The 35 and 40 year mortgage was the big affordability scam argument of the property bubble. Under these long duration mortgages and low interest rates the repayments on very high loans could be less than 30% net pay. Indeed, banks and mortgage brokers were so helpful that, in some cases, interest only loans were available for the first couple of years of the mortgage term.

Many of these type of mortgages are now in negative equity serviced by couples whose job security is also threatened. These couples are also facing reduction in income from increased tax.

Perhaps you are only thinking of the monthly payment, but the amount of money you repay in interest for such long term loans is enormous compared with the pre-bubble 20 year mortgage. Arguably, the longer you carry debt the more likely you are experience some event which makes it difficult to make repayments (eg illness or unemployment).

Imo, house price have much further to fall to represent 'fair value' -traditional 20 year mortgage should be based on 2.5 times average wage.

In light of the current increase in unemployment, excess housing supply and banking bad debts, I can only see continuing house price declines for at least 2009. Rents are also declining - so why would you want to purchase an asset declining in value and face the real possibility of negative equity?
 
and to think i was going to be browbeaten by a broker. Thank you all for the very helpful advice.

Lastly, in the coming yrs should i go to a broker or straight to banks? I got impression the broker was doing me a favour b ut he was giving me a 40 yr mortgage at a terrible time to buy etc, I have now found out from doing research[i didnt know what a mortgage was last week practically]

Briano88.
 
The brokers are handy as initial sources of info, as they can get you a range of figures and explain interest rates, mortgage interest relief and all that. Also if anyone is (foolishly) looking for more than they can afford they can argue their case with the banks to get it. I have dealt with 2 banks directly myself when applying for mortgages in the past, and found them very good and straightforward. Also I like the fact I could ring them myself to get updates on my application, rather than ringing the broker to see had he rang them yet. You can do a lot of the research yourself by looking at the different banks' websites and things like http://www.jeacle.ie/mortgage/ so you can figure out the best deal for yourself. But your real first task before all of that is figuring out your real affordability, and no matter what route you take know what you can afford and don't be pushed into taking more. So that you don't feel yourself in a constant bind for the life of your mortgage. Sure your wife may go back to work when the kids are older, an elderly relative might die and leave you money - but until all that happens you will be putting the holiday on credit cards, and then suddenly it's the weekly shop on the credit card at the end of the month and then the ESB bill you forgot was overdue. And suddenly next month's pay is already spent two days after it hits your account. A really good detailed weekly/monthly list of outgoings will be invaluable. You need to include annual big spends like car insurance and tax, fills of oil, health insurance etc spread over each month.
That fact that an average family on 40k (with one parent staying at home to mind children) cannot afford a house without a 40 year mortgage is testament to the fact that house prices in this country are still far too high relative to income, and has eroded family life in cases where two parents need to work to service the mortgage. I can see your point about a 40yr mortgage, you only want a house for your family and renting in this country provides no stability, landlord can put the house up for sale at any time and you have to move again. Here's to both us being able to afford family homes for a reasonable price the next couple of years.
 
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If the bank does a proper stress test on our income then you can only pay 35% of your monthly income on your mortgage. 40years is a long time brian.
 
Briano88 said:
Lastly, in the coming yrs should i go to a broker or straight to banks?
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Depends (a) on the broker and (b) on the bank. Good brokers who deal with a large number of lenders are useful - they'll get you more quotes so you can be better informed, and will often guide you through the approval process so it's a little less stressful. Always ask how many institutions they deal with. But if you have a good relationship with your own bank and / or are prepared to do a good deal of research, you may be able to do as well or better.

35 and 40 year terms are shockingly expensive simply because you're paying itnerest for so long, and they're a horrendously long term financial burden if you really expect to take that long to pay them off. The only circumstances where I think they are useful - and I'm even a bit dubious about this - is where someone is currently on a relatively low salary but has excellent medium term prospects which will ensure they can ramp up the payments and pay it off in a much shorter period.

Bottom line: if the only way you can afford the mortgage is to take such a long term, I don't think you can afford the mortgage.
 
PaddyW said:
Don't go for a 40 year mortgage Brian, I think most others will agree.
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I wouldn't agree with this. Nothing wrong with a 40 year term so long as repayments are flexible so that you can pay it off sooner (max 25 years). I'd go 40 but overpay (based on 20 - 25 years) from the start, then if there were unforeseen circumstances I could revert to a lower (over 40 years) payment without any hassle from the bank.
 
michaelm said:
I wouldn't agree with this. Nothing wrong with a 40 year term so long as repayments are flexible so that you can pay it off sooner (max 25 years). I'd go 40 but overpay (based on 20 - 25 years) from the start, then if there were unforeseen circumstances I could revert to a lower (over 40 years) payment without any hassle from the bank.
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I fully agree in principle.

The problem is that the people taking them out tend to be people who don't qualify for a shorter term mortgage.

I think interest only and 40 year mortgages should be available but the stress tests should be uniformly based on a 25 year term i.e. if someone can't afford a 25 year mortgage don't give them a 40 year one
 
michaelm said:
I wouldn't agree with this. Nothing wrong with a 40 year term so long as repayments are flexible so that you can pay it off sooner (max 25 years). I'd go 40 but overpay (based on 20 - 25 years) from the start, then if there were unforeseen circumstances I could revert to a lower (over 40 years) payment without any hassle from the bank.
Click to expand...

I would be surprised if people who take out 40 year mortgages overpay. Children, holidays, cars and the like probably prevent this happening in practice imo. Also, you may want to trade up if you do have more kids, and your ability to get 40 year mortgages diminishes as you get older, so trading up becomes more difficult (as you pay off less capital over the initial years and have to face a lower term mortgage if you want to trade up). Why not take out a 25 year and if you have 'unforeseen circumstances' roll over for a longer term (which is what will happen in practice unless borrower makes no effort to repay or co-operate with his/her bank).

The 40 year mortgage is a relatively new phenomenon and is, imo, as sustainable for property prices as the 100% mortgage. The logic for the 100% mortgage was that it should apply to young professionals who had significant earning power, and were at the start of their professional life. In practice however it just fuelled the current credit crises along with these new longer term mortgages.
 
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