Self stress test and disposable income

B

boardmember

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Hi,

So I am going though the mortgage process and have been approved in principle for the amount I'm looking for. After the deposit I will look to draw close to 400k. This means mortgage repayments are creeping to 2000 per month leaving around 2000 disposable income after bills. Is that really enough to live comfortably on for a married couple with no kids in Dublin. We are both in mid thirties. Or should we be looking at cheaper houses. I'm really trying to stress test myself.

Thanks
 
Hi boardmember,
Firstly the question is whether you have any intention of having children or not. If you are, then you would really struggle with this amount to be honest given the cost of childcare. An 'unplanned arrival' here could have a serious impact on your financial situation.

I think the best thing you can do is do a calculation of your annual expenses - insurances, taxes (including property tax) etc and then see what you would have left after that. Taking a small amount out for emergencies, you will then know what your monthly available spend is, assuming no saving. Look over the last few months and see what you spent and see does it match up. Most peoples utility bills will come in at around 2k a year if not higher (ESB, gas, waste, water etc).

Quick calculation of 400k at 4% for 30 years is 1910 euro. Stress testing that by 2% alone will make it close to 2400 euro

I thought the general rule was the repayments should cost no more than 40% of net income - this would be closer to a mortgage of 325k

Personally, I think its too tight and surprised the bank are actually offering it !
 
I think OP is giving us the disposable income after bills are paid so obviously their net monthly income is much more than the 4k combination of 2k payments and 2k left. If the payments were 50% of NMI then they wouldn't have been approved the loan.

As other poster said greatest risk here is unforseen costs such as children! This would result in either childcare costs which can be like a second mortgage or a reduction in income due to dropping back to less hours etc. Other than that I would think 2k after bills is a fine income assuming nothing changes in your life and there's the problem!
 
Does the bills include rent?

Or are you factoring that in to the 2000 disposable you mention?
 
As a general point, it does seem strange to me that the stress test is % based. The bills, outgoings etc for the same sized family in a 300k and 400k house aren't going to be much different, mortgage excepted, with a slight increase in property tax and house insurance costs.
 
The stress test is a one size fits all test.

Whether the amount is actually enough depends on your lifestyle. Some people shop in Pennys, others in Brown Thomas. Then as GNF said, do you plan to have kids? If so, what will be the child minding arrangements? Are you in a job where you have a good chance of promotion and a decent salary increase?

You are about to take on a 25-30 year financial commitment. There will be huge demands on your money in that some and a lot of them will be completely unexpected and unavoidable.

You will have to weigh up whether you want to live in a €450,000 house and the repayments that go with it or continue with your current lifestyle and live somewhere else.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I suppose it really depends what the OP is including in the "bills" category.

The rule of thumb that my old Dad used to preach was no more than 1/3 of your after-tax income on housing.

For a house owner, that would include mortgage payments (principal and interest), mortgage protection life cover, house insurance premiums and, of course, the LPT. If you want to be really prudent, I would also include 1% of the house purchase price (€4,500 per annum in the OP's case) to allow for repairs and maintenance - there is always something that needs to be fixed or replaced in any house!
 
Sarenco said:
The rule of thumb that my old Dad used to preach was no more than 1/3 of your after-tax income on housing.
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Your old Dad was not far off! The ones I'm aware of are Austria, Germany and Switzerland where the general rule of thumb is to spend between 20% and 25% of net income on housing.
 
Jim2007 said:
Your old Dad was not far off! The ones I'm aware of are Austria, Germany and Switzerland where the general rule of thumb is to spend between 20% and 25% of net income on housing.
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Jim2007 said:
Your old Dad was not far off! The ones I'm aware of are Austria, Germany and Switzerland where the general rule of thumb is to spend between 20% and 25% of net income on housing.
Click to expand...
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Boardmember.
1. Payments will be 2,000
less rent (I presume) 1,200
..................................................................
You need to find extra 800.

+ is new house closer/further from work = savings or costs.
2. As Gnf says a 2% rise = 400 more can you carry that?

3. Future Children.
They cost more than a Mortgage .

6. The old country saying was spend a third, waste a third ,save a third.
I suppose the third saving part is now the mortgage.

When all is said and done = your call .
I would expect that Mr Bank has stress tested so you should be safe .
You can always find reasons not to do something!
Good luck.
 
Gerry Canning said:
.........

I would expect that Mr Bank has stress tested so you should be safe .
You can always find reasons not to do something!
Good luck.
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Not so sure Mr Bank did a good job stress testing applicants during the last property boom/bubble!

You are certainly right that you can always find reasons not to do something and nothing in life is completely risk free. However, I think it's worth emphasising that there are a lot of costs associated with home ownership beyond the mortgage payments that somebody who has always rented might not necessarily appreciate.
 
If there is only one earner in the household; or one person is earning significantly more than the other, part of your personal stress test should be how secure the job is, or if main earner is in accident\injury that leaves them unable to work. Consider an Income Protection Policy (which will payout continuously if you are unable to work in your chosen profession), or a Mortgage Payment Protection Policy (if redundancy is main concern this will cover payments for 12 months).

Not implying you shouldn't consider these otherwise, just I think it's more important in those scenarios.
 
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Sarenco said:
Not so sure Mr Bank did a good job stress testing applicants during the last property boom/bubble!

You are certainly right that you can always find reasons not to do something and nothing in life is completely risk free. However, I think it's worth emphasising that there are a lot of costs associated with home ownership beyond the mortgage payments that somebody who has always rented might not necessarily appreciate.
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Agreed Sarenco .
I would like to think that even the (ProfessionalDonkeys) in the Banks are doing at least a semblance of a stress test.
In the fluffy times they were testing to lend.
I would expect they are now testing for Risk level.
You are correct in costs for insurance/painting/repairs/replacement dish-washers etc have to be factored in.
 
odyssey06 said:
If there is only one earner in the household; or one person is earning significantly more than the other, part of your personal stress test should be how secure the job is, or if main earner is in accident\injury that leaves them unable to work. Consider an Income Protection Policy (which will payout continuously if you are unable to work in your chosen profession), or a Mortgage Protection Policy (if redundancy is main concern this will cover payments for 12 months).

Not implying you shouldn't consider these otherwise, just I think it's more important in those scenarios.
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That's premium protection insurance, not mortgage protection, which is life cover. You have to be careful with PPI that it will actually pay out in the event of a claim. It's not cheap and if you are self employed, you're not covered.
 
SBarrett said:
That's premium protection insurance, not mortgage protection, which is life cover. You have to be careful with PPI that it will actually pay out in the event of a claim. It's not cheap and if you are self employed, you're not covered.
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Odessy.
Too many of these income type protection policies do not readily payout.
So be sure of what you are actually buying .
As Sbarrett says ppi was poor at payouts and on general policies it is getting very hard to even prove heart attacks!
Income protection needs to be done by a trusted seller.
That said , Insurance well sold is very good.
 
Thanks for the replies, some good advice there. As SB mentioned I am about to take on a 30 year commitment and want to make sure I can live relatively comfortable (I am one that enjoys the finer things in life!! :)

2000 disposable income takes into account bills being paid, utility, broadband, TV, house and life cover. I do get an annual bonus which can be put to repairs if needed. Due to our circumstances kids are not an option for 3-4 years. Dublin is so expensive and fuel costs etc have to be factored in.
 
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