How much of a financial risk did you take?(16 Posts)
We're just looking at the next rung of the ladder and my is it expensive. I know we're lucky to be on the ladder at all.
Just wondering really what financial "risks" you have/would take. We both come from super conservative families who have never really moved from the area they were born in. We were quite conservative with our first purchase and can see that others who weren't have been able to make that leap to the next house more easily.
As background we both have good jobs, which are well paid, have a 40% deposit and are looking at 3.5 x joint income. We have two pre school dcs and would like one more if we're lucky, we're in our late 30's. the size of the mortgage is eye watering to me, but we could (just) afford it in one income of one of us lost their job, and it's the same as the overpayments on our existing mortgage. I guess I'm just nervous as even with our deposit and income we'll still have to compromise on a number of things, and, friends either have the view that you borrow the max you can, or that you do everything to have the lowest possible mortgage, but if we did the latter, we'd be in a shoebox !
I was hugely nervous when buying both this house and the previous one. It doesn't matter what the figure is, in ££, if it is a big jump, then it is scary!
IT sounds like yours is not really a risk, in terms of % x your income and the amount of deposit.
I'm so glad we stretched ourselves when we did (both times), frightening though it is at the time.
What I did when first thinking about selling my flat and buying our first family home, is, each month I saved the new mortgage payment. It both gave me confidence that I could do it, and also, as a bonus, a nice healthy chunk of saving to use at the time too.
We've certainly taken calculated risks when buying. By which I mean - we looked at worst case (not just if one job went, but also interest rate rises), opportunities to overpay (e.g. bonus / other loan being paid off, so freeing up cash etc.,), impact on current lifestyle (what we would have to cut back on if something went wrong vs what we would choose to cut back on when it suited) - and then went for it.
For us, it did work out, and from the sounds of it what you're looking on should too (sounds like you're not really going to need to cut back, given you're already overpaying on the current loan).
Obviously, you've only given a snapshot of what you're thinking but - would you regret it more if you did push up, or if you didn't?
To put it into perspective, my father took out an endowment mortgage for £3500 in the late 1950's. The worry of how he would ever pay it all back kept him awake at night.
We didn't take a risk at all. I am a worrier when it comes to things like definitely being able to pay the mortgage under any circumstances. We saved up a huge amount before moving to a more expensive house. We basically paid a mortgage to our savings account for years and moved into the house after we had mostly already paid for it. I am not recommending this approach. It enabled me to sleep easy and I'd rather be worry free than be anxious even if taking a risk could have resulted in making a fortune in rising property prices.
We've just bought. We've been off the ladder for a while and so were effectively first time buyers. We're in the south east and have taken on a fairly hefty mortgage. DP could manage the payments on just his income. I would struggle. I'm not overly worried by this. Both of us are in professions where we are unlikely to be made redundant. If sonerhing serious happens we can always sell up and downsize.
We were very wary of stretching ourselves with our first house. We overpaid it really early and realised it wasn't that scary. We've been much more brave with subsequent houses and glad we did.
In roughly the same year that we would have finished paying off that first house had we stuck to the 25 year plan, we now own a 5 bed family home, a holiday cottage and rentals. Yes we still have a mortgage though very manageable as we have the extra income.
You've already worked it all out and weighed up the risks, you'd be fine.
We've taken huge risks. Our last home nearly broke us at the beginning. We maxed out our credit cards paying the stamp duty, the interest rate was 4.39% and the mortgage cost about 70% of our monthly income at the time. (DH got about 30% of his salary in a yearly bonus so we knew we only had to hang on until the end of the first financial year to make it work, which was a few tight months of trying not to put the heating on if avoidable). We didn't think much about interest rate moves, or expensive utilities, or children when we bought it. We were in our late 20s. But interest rates dropped, we saved DH's bonus in later years and paid some off, and we benefited from the London property boom when we sold last year. The area we bought in went from industrial to boutique in a few years.
However that was a risk we took when we had no kids and were well able to cut back when needed. Our most recent home is far more conservative in affordability and in layout/location but to be honest, it's thanks to our 2010 gamble that we can actually afford to be more cautious now. Childcare is a massive outgoing (we have two preschoolers, no family nearby) and our current mortgage repayments are literally half what we paid then - I don't think we would have risked it with kids. We earn more as a family, spend less (on ourselves) and still are more stretched than we were, and far more risk-averse. Interest rate rises were a big concern when we bought this house and we've kept some savings back to counter that when our fixed rate deal ends.
Huge risk - every penny the bank would lend us and every penny we had saved. Had 3 children under 5, I was on maternity leave. Had relatively secure jobs and the prospect of an increase in income when I could do more hours and we'd stopped paying for nursery (3 or 4 years in the future when we bought) and it was an old lady's house that needed doing. We had to take out a loan to keep things ticking over (and I mean just the basics), didn't really have much of a social life, camping holidays. However, it was the only way we could take the next step up in the sought after location we wanted for schools etc.
But, things improved after about 3 years. 7 years on and we've finally done an extension. House prices / value due to extension has increased massively and had we not taken the step when we did, we would never be able to afford the house we're in, and we have quite a big equity cushion now if anything were to happen.
We're very risk averse - so not much. My family is in Aberdeen and I know that some people there have been financially ruined because of the crashing prices there. People are losing up to 50% of what they (over) paid for their homes.
Prices don't always go up.
Why do you want to move? I don't mean I want to know, but the risk I would take would depend on the reasons for moving.
I'm incredibly risk averse, so I wouldn't take on a huge financial burden just to "climb the ladder". Ladder climbing in property is somewhat of a social construct. If your house has increased in value since you bought it, so has everything around you.
Bigger houses incur higher costs beyond a higher mortgage. Factor in things like heating, council tax, longer to clean if you have a cleaner.
The costs of actually buying and selling are insane. Could you use that money to upgrade/extend your current house.
We did similar to Ridersontheswarm. We were lucky in that we bought our first house in a recession and then only based our mortgage on one wage as I was on maternity leave at the time. We overpaid as much as possible on the mortgage, as well as saving like mad to upsize eventually, using my wages, while living on my husband's wage. Our (very cheap) first house increased in value threefold over 15 years, so we moved to a bigger house with no financial risk at all.
It's a bloody good job really, as ten months after we moved, I was permanently disabled and can't work any more. Six months after that, my husband was made redundant from a job he had done for 20 years. There were no redundancy payments as the company had folded. Basically we would have been totally screwed.
Life can change so quickly, and I would always recommend to anyone who wants to increase their mortgage that they put away the difference between the current payment and the future payments and costs, for at least a year to see if you can manage.
We didn't stretch ourselves relative to our income - we borrowed 2.3x DH's income and were offered much more, but decided not to take it. The amount we borrowed was huge (as we work in London and didn't want to commute from the suburbs) but it was reasonable compared to our income and lifestyle.
We were also cautious in stopping at one dc so that we can keep our outgoings low and make it easier for me to return to work. We don't have any plans to move up the property ladder even though we are in a 2 bed flat - these choices meant we have been able to overpay significantly and should clear the mortgage in full within a few years.
I didn't stretch and can see it from both sides. I bought a flat in the South East nearly ten years ago. The returns have been good so if I stretched then I would have a better return. As it stands I have a low mortgage and not many years left to pay it off. It will be paid off in my 30's. I have no desire to stretch and upsize. The saved mortgage payments will be blown on holidays, days out and living life to the full.
You also have to factor in, that the years it is really useful to have more space, if you can possibly manage it, are the years when you have children living with you. Being 'conservative' now and saving and waiting won't get you the space they need to play out in, or the extra Reception room, or the bedroom each, until the people who wanted all that are getting ready to leave.
I'd say the vast majority of us don't buy a bigger house 'as an investment' but as a home that works for our family.
We've lived in our house for 20 years this week. It was a huge stretch to buy it and we had DS 2 years later. Property prices have risen fairly big time, but but not at big city rates. Now we are thinking of downsizing for retirement, but we are not stuck on area. We are the people blocking the opportunity for young families to move up into nice family houses.
But, the big but, we are not going to move into a rabbit hutch for old people, just because it would suit society. No way am I moving into a one bed anything, on one level, with no view or garden. I'm 60 not 80.
I went for the middle of what I could afford. I had a 50% deposit so benefited from low interest rates, but I wanted to be sure that if I lost my job I wouldn't worry too much about repayments.
Ironically I've just got a promotion and an £8k rise, but there was no inkling of that when I bought this place. It means I can afford to get it done up faster and then think about what to do next. But it's just me, plus my lodger, and so I don't have to worry about dependants.
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