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Moving up the property ladder on one income?

(81 Posts)
fluffygreentail Wed 14-Jan-15 21:50:12

We are running out of space with two preschoolers in a house with smallish rooms. Since the summer, we have been starting to think about buying a larger house but only have one income.

Looking at finances, we would be increasing our mortgage to net income percentage from 22% to around 33-37% depending on how much we borrow and the price of house we end up buying. We'd still be able to save a few hundred after bills/higher council tax+ estimated increase on utilities/food/having a few days out but that seems tight. We seem to get a run of quite months when we have to drop money on unexpected things (things which cost several hundred) and then nothing for months after. Children get more expensive as they get older too.

It seems like the right time to make our next and final move but not sure if we are cutting it too close to the wrong side of manageable. If we don't do it now, we'd never do it.

Or, being naturally quite frugal, we continue to save to add to the rear of our house but due to space constraints, it wouldn't be a huge extension or just start overpaying our mortgage.

Any experience of this situation?

Thank you.

Older Wed 14-Jan-15 21:54:42

Have you investigated if anyone will lend you this? That would be my starting bench mark. If they do and bearing in mind what you've written I'd say do it

Older Wed 14-Jan-15 21:56:13

I'm a single income house and pay 37% of my income on my mortgage

fluffygreentail Wed 14-Jan-15 21:56:29

We have investigated and yes, we could. Should we though?

fluffygreentail Wed 14-Jan-15 21:58:36

Terrified if anything happened to which meant DH would have no job or was ill. There'd be a lot further to fall.

Older Wed 14-Jan-15 22:03:40

I'd be in deep do da if I lost my earnings whatever my mortgage was tbh. I do have a house to sell and can move down should things get tight.

NormHonal Wed 14-Jan-15 22:05:20

We did it, although through a twist of circumstance during the buying process rather than by design.

If we had started the buying process knowing we would only have one income by the end, we might have gone for a smaller house/mortgage, however we were already buying conservatively rather than stretching ourselves.

We did our research and found out that houses like the one we were buying rented for far more than our mortgage payments, so if the shit hit the fan we had the option to rent a cheaper place (or stay with family) and still profit from our home.

We were lucky to be going in with a good lump of equity from our previous house too.

It has been worth it, a few years down the line it has gone well up in value.

fluffygreentail Wed 14-Jan-15 22:13:50

This would be a few big steps up for us and at the upper limit of what I feel comfortable. The next step up would be only a little bit larger than our present home but with all the costs of estate, stamp duty and legal fees. Doesnt feel worth it.

We always play it safe. Always. It sounds do-able but who knows what unexpected expenses could be thrown our way. It would take a good few months of saving to build up safety net fund.

Apatite1 Wed 14-Jan-15 22:43:14

37% of £10,000 leaves plenty behind to live on, 37% of £2,000 not so much. So really depends on absolute numbers than percentages.

fluffygreentail Wed 14-Jan-15 22:45:43

Yes i know but dont want to give away family income secrets but appreciate that its hard to provide opinions when this info is absent. Its not quite as much as £10000 but more than £2000!

footallsock Wed 14-Jan-15 22:54:38

When we did detailed numbers for a move I looked at 12 mths credit card statements etc in detail. I worked out that on ave over the time we spent 200 a month on unavoidable odd things - new car tyres, new washing machine, roof repair etc. I added up things like take aways (2 per month treat 40 pounds) one meal out (50 pounds) birthday presents for family (ave 10 a month)... I worked out what we could cut and what not. I recommend looking at it that way. One income or two makes no difference. It's in v out

footallsock Wed 14-Jan-15 22:59:11

I would also factor in schools - no idea if you are in an area where there are huge issues. If you are close / in catchment for an excellent school then stay put for now. It's a massive influence on the decision at this point

Apatite1 Wed 14-Jan-15 22:59:17

I get it, no pressure to reveal if you're not comfortable. I think it's risky on one income no matter what the percentage actually, as no job is 100% secure. So increasing the % doesn't particularly add that much extra risk. If you have a decent amount for emergencies (say £500, not £200) I'd go for it. Think most people have a few hairy years when it's all sailing a bit close to the wind!

wowfudge Thu 15-Jan-15 08:07:02

In the longer term, if you were to move to a bigger, more expensive place would there be two incomes at some point in the future?

fluffygreentail Thu 15-Jan-15 08:45:03

Thanks for more responses.

In our area there are two very desirable primary schools (which dont actually achieve any more than the other schools) and two schools which are technically sound/fine but don't have quite the same local kudos. We are living in catchment for one of the desirables.

There are three houses we are interested in and they are in the not as in demand/less kudos catchment. This doesnt bother DH as he is of the view that we as parents should be able to identify if our children are struggling/ doing well and work with the school.

For secondary level, he is also interested in state grammars in the next town.I just worry that if we had "strugglers", we might not have spare cash for extra tuition in the big house although we probably would.

I am loving being at home and it works well for our family as DH has long hours and sometimes works away but in two years time, I want to be working. I want a part time or 3 or 4/5th working week to fit around the children. I am not of professional level and accordingly, I wouldn't be earning enough to run the household if DH was to face a redundancy.

fluffygreentail Thu 15-Jan-15 08:45:54

I dont want to retrain either.

hereandtherex Thu 15-Jan-15 12:24:48

Probably a 'No' to borrowing more.

IRs are very low at the moment. I expect them to normalise to a (mortgage) rate of ~7%. Put 7% into spreadsheet and see how the figures come out.

Is this an proper mortgage i.e. repayment? Most mortgage taken out since 2002ish have been IO, which is insane. If its an IO mortgage then the answer is 100% No!

In general, you should aim for no more 30% of take home for the mortgage. If you are not paying off your credit card every month (and Im not saying you are) then that's a things are too tight.

Kids can be as expensive or as cheap as you like. I don't buy much i nthe way of new clothes for mine (7+9). I'm avoiding them expressing any preference over what they wear for as long as possible. Sally army + jumble is fine.

As soon as our youngest started school, we switched to 1.5 incomes and that increased the income a lot esp. now, thanks to the coalition putting up the tax free limit up to 10k.

Cannot comment on yor DH possibilities of redundancy. The only thing anyone can reasonably do is to have a few months cash available in the bank. And try avoid borrowing yourselves into a certain financial death.

fluffygreentail Thu 15-Jan-15 12:39:01

No credit card.
No car loans.
No overdraft.
Never have, never will regards to the above. we are very frugal, consider what we spend but not the the nth degree, so dont need credit.

Would do a repayment of capital + interest. No way interested in interest only!
We could bring the mortgage to 31% of net income and plan to overpay when we can if get a tax refund or birthday money. Would fix for 5 years as have done previously.

Sorry to sound a bit thick, does interest rate depend on the terms of your deposit and mortgage?

Its just if we do get a run of bad months (new tyres/boiler/leaky shower/failed MOT) etc or have loads of family or friends weekends away, worried wont be able to build up reserve funds like we are able to now without really trying.

hereandtherex Thu 15-Jan-15 12:56:10

Good for you. Unsecured debt is expensive.

It makes sense to overpay the mortgage as much as possible. Its easy at the moment. It probably will get less easy as time goes on.

Mortgage fixes depend on the swap market - basically a bank sells off the debt/risk to someone else. No market stands apart from another; they're all linked.

Today, a 5 year fix with 60% LTV will be ~3.5-4%. Don't bee fooled by some of the leadres in mortgage tables - they tend to charge very high fees.

fluffygreentail Thu 15-Jan-15 13:05:40

Thanks for explaining that hereandthere. So much to think about and no one can decide.

magichamster Thu 15-Jan-15 13:08:22

It is a tricky one, but a lot of the things you have mentioned would probably be the same if you were moving up with two incomes.

We did this a couple of years ago, although it was more forced on us as dh was relocated to another part of the country. We've actually managed really well (we too don't really have any credit other than the mortgage, although we have been helped out by the current low interest rates).

I'm now back at work, currently full time, but looking to go part time should anything come up. For the first time in ages we feel fairly well off because everything I earn is a bonus. DH gets paid a lot more than me and we would still struggle if he lost his job. It does mean we can save a lot more now and have a few treats.

We felt that we were in a better position, because we had the potential to earn more, rather than both working full time and having the maximum income we could. If we moved again, we would only calculate on one income.

Before anyone jumps on me, I do realise we are incredibly lucky. We live in a cheapish area too which helps.

No one has a crystal ball, and no one should be telling you what to do, but for us it was the right thing.

Oh, and interest rates are determined by your lender. You can get fixed rates, or trackers, or a variable rate which will change as Bank of England rates change. The current Bank of England rate is 0.5%, but you will be unlikely to get a mortgage rate (fixed or otherwise) as low as this.

IssyStark Thu 15-Jan-15 13:09:17

There are some 10 year fixes out there (again 60% LTV) so you could fix for even longer for piece of mind.

We are two incomes, currently on a very low level of monthly repayment due to overpaying, so should be mortgage free in less than 4 years if we stay here, having bought in 2005 on a 25 year term. But with two growing kids, I would like to move somewhere larger before ds1 starts secondary school. the thought of how much we'd need to move to somewhere larger and in an area we like is scary (we really like where we are now, although it isn't seen as desireable, but we do like being close to work and schools). We'd basically have to double our mortgage payments which does make you think twice, hence wanted a long term fix if we could, despite the high upfront fees (I think it is nearly £2k on HSBC's 10yr 1.99% rate).

atticusclaw Thu 15-Jan-15 13:14:41

I completely disagree with the PP who said in your situation interest only is insane. Quite the reverse in fact. IF you could get interest only (and that's a big IF) then it would be far better for you since it give you flexibility and that is very important where you only have once income (as long as you can afford the repayments on a repayment mortgage).

So by way of example I could have a repayment mortgage and pay £1000 a month (at the end of the term nothing left to pay) or an interest only mortgage and pay £200 a month (at the end of the term I still have all the capital to pay off).

If I take the interest only mortgage because I only have £200 max a month to spend on housing then clearly that is a bad move.

If I can afford the £1000 then I should take the interest only mortgage.

If I lose my job and only have £700 a month coming in then I am immediately going to default on my mortgage if its a repayment mortgage. I simply don't have the £1000 compulsory payment.

Having the interest only mortgage however lets me stay in my home. I might only be able to afford the compulsory interest payment and not afford to overpay any capital or put any money into investments with a view to paying off the capital at the end of the terms but in all likelihood this is cheaper than me moving out and finding a place to rent. I can therefore stay in my house paying only the £200 a month and hopefully things will pick up in the future since I will find another job. I can then start paying into my investments again (or overpaying if that is my chosen way of paying off the capital) If I never find another job then at the end of the mortgage term I will have to sell the house because I won't be able to repay the capital to the bank but I'll have lived in the house for 25 years effectively renting it cheaply from the bank. Plus the property might have increased in value and I will have made a gain there.

We have an interest only mortgage. It would always be my preferred choice. Our repayment would be almost £4000, our interest is £500. The difference is massive. We actually overpay so that we do make a payment of £4000 each month. This way we are reducing the capital every month which means that each month the compulsory interest part of the payment goes down a little bit too (which means that overall we are reducing the cost of the mortgage loan).

Interest only mortgages are only insane if you take them out because you can only afford to pay the interest or you have no discipline when it comes to money. Even then they can act as a cheap and more secure way of renting.

fluffygreentail Thu 15-Jan-15 13:20:39

our ltv would be not be near 60% unfortunately. thanks atticusclaw brilliant explanation. what about the schools thing?

magichamster Thu 15-Jan-15 13:28:05

have you been round the schools or are you just going on local gossip?

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