The problem with mortgages

The problem lies with how mortgage budgets are worked out.

Everyone knows saving a deposit is hard. But it’s only part of working out the type of home you can afford. The part that affects how much money you can borrow is your household income and it has a considerable effect.

Lenders multiply your household income to work out what they’ll lend you and according to UK Finance, the national average multiple is only 3.54.

A household income of £50,000 x 3.54 = a £177,000 mortgage

If the home costs more, your deposit has to make up the difference.

If you can only borrow £177,000 and the house costs £250,000, your deposit needs to be £73,000 🙀

Lots of people talk about needing a 10% deposit. So if a home costs £250,000 they think they need to save £25,000. Unfortunately, the way to really think about deposits is that you'll typically need at least 10%. But often, a whole lot more.

The table below shows how this can quickly get out of control.

Your mortgage*	Cost of home	The deposit you need to make up the difference
£177,000	£200,000	£23,000 😔
£177,000	£250,000	£73,000 😫
£177,000	£300,000	£123,000 😳
£177,000	£350,000	£173,000 😱
£177,000	£400,000	£223,000 😑

*using £50,000 household income and the national average lending multiple 3.54x

It’s a bit depressing isn’t it. This is what ends most homeownership dreams. But here’s the really annoying bit…

You might already be comfortably renting a home worth a lot more than the one you can borrow money to buy. In my case I was renting a flat worth around £375,000. But, I could only borrow around £172,000.

I paid £1,200 rent, every month, for 6 years. But I can’t borrow the money to buy the same type of home. Infuriating!

And, unfortunately, it’s unlikely to change. All you can do is significantly increase your salary or your deposit and we all know how tough that is.

So, without big incomes or big deposits, mortgages make us sacrifice.

That might mean moving away from family and friends. It might mean fewer bedrooms. It might even mean moving to a less desirable part of town, far from the best schools and your job.

And if you don't want to sacrifice you’re stuck paying 100% rent for the rest of your life.

So, that’s the problem. Frankly, it’s time for some solutions.

Let me tell you how we're trying to solve it.