"Disposable income"?

[woodpijn]

A mortgage adviser wanted to know our disposable income. We weren't sure how to answer, and the more we tried to drill down into what he meant by it, the more confusing it got. The concept seems to rely on two assumptions, both of which I disagree with: 1) that there's a clear binary division between needs and wants, and 2) that this corresponds to

Comments

[atreic]

Yes, I remember feeling really confused and also embarrassed when I was doing mortgage conversations. Like Good People had memorised how much the water bill was , whereas I had a direct debit and sense checked it once in a while and was lucky to be comfortable, and like obviously if money was tight we wouldn’t spend X pounds on holidays, but it wasn’t so we did so it was daft it wasn’t counted in ‘money we could put to our mortgage if we had to.’

[woodpijn]

Yes, exactly! Glad it's not just me :)

[anonymous]

Would you be able to answer the question "how much is your disposable income?"Um… yes? Obviously

[anonymous]

Although, one thing that does occur is that if this is about a mortgage then presumably you are thinking of moving house. And quite a lot of non-discretionary income would change if you were living in a different house: it might be in a different council tax band, the rateable value might be different which would affect the water charges, a house with different thermal characteristics would cost more or less to heat, and so on.

Even just being in a different place would affect your fuel consumption to and from work, which will mount up even if it's just a tiny amount.

So a large element is just going to be guesswork anyway.

[woodpijn]

Actually borrowing for an extension rather than moving, so most of that won't apply, although a bigger house will cost more to heat.

I work from home (even in non-Covid times) and Alex cycles to work, so the fuel thing shouldn't matter even if we were moving (unless we moved too far away to cycle, but we'd be extremely unlikely to do that).

But it's definitely a huge amount of guesswork. The utility company increasing the prices, or an unusually cold or mild winter, or getting a new energy-efficient washing machine or tumble dryer, would probably make more difference to utility bills than the moving-related changes you suggest.

And any of those changes are still smaller than the changes we could make by cutting down on discretionary spending (disposable income in your and my sense but not the mortgage adviser's sense).

[woodpijn]

That was basically my understanding, yes.

But it didn't seem to be what the mortgage adviser meant by it. He explicitly said all our direct debits and standing orders (including regular charitable giving, kids' activities, subscriptions, any regular transfers to savings, etc) should be subtracted from our income when calculating it. Hence my confusion about what he meant by "disposable income", because it's *not* the same as what I understood it to mean, and doesn't seem to be a coherent concept.

When I used terms like "discretionary" I was trying to highlight this disconnect between my understanding and the adviser's.

[toothycat]

Back when we were first having those conversations we knew the numbers involved because we'd literally sat down and worked out what our bills were, what we spent on food, what we spent on average on less regular necessities like clothes, and what was therefore left over - it wasn't a particularly large sum.

Then again, we entered the housing market quite a bit earlier than most people we know, and were probably in the hand-mouth situation you describe. (We discovered a great deal of fun novel information at the time, such as the fact that the bank wasn't allowed to give us a mortgage that left us less than 60% of our total income for bills and necessities, but e.g. having tap water wasn't a necessity. It was a different era.)

[woodpijn]

I was in a similar situation when I was renting - agents didn't want to rent me somewhere that would cost more than about 40% of my income, even though I was comfortably able to manage on a lot less than that (no car, cheap tastes in food and entertainment).

[angoel]

In this instance, I think "disposable income" means "How much money would you be capable of paying into a mortgage each month while remaining happy with your life choices". However since most people haven't really thought that question through, they dress the question up in other ways.

[woodpijn]

I guess.
It seemed to be more like "without cutting back on anything you're currently spending."
But, I think, by definition, if you're taking on any new financial commitment, you have to do less of whatever you're currently doing with your money, even if that's just sticking it in an ISA.

[geekette8]

No, I would not be able to give a number right now off the top of my head (and that advisor has weird definitions