Page 3 | To go from a £500/m mortgage to a £2800/m mortgage?

badatdecisions · 2024-05-11T15:47:07+00:00

My partner and I have been looking at buying a bigger house for years, but we're so picky about the area and what we want that there's literally been about 3 properties that we've been interested in enough to go and look at. Recently one has come up that we both love - it's not quite perfect, but it's the closest we'll ever get to what we want in our budget I think, and there's lots to love. However, I'm very nervous now about such a huge mortgage jump, as we're currently on a low interest rate on a very small house, lived there years, will have fully paid it off in the next 3 years and would be "free" to travel or do whatever we want as we're self-employed and can work from anywhere. We are mid/late 30s, no kids or plans for kids. We were considering keeping our current house as it's nearly paid off (I know there's stamp duty to think about with 2 properties), as when I was growing up my parents lost our lovely family home and it's made me really paranoid about losing another home by taking on a huge mortgage, so at least we'd have a house we love to go back to if needed? Mortgage broker says we're eligible for a bigger mortgage than the house we're looking at buying, but to be honest the thought of that much more debt terrifies me. Our business is profitable every month (touch wood), but we have a team of staff and salaries to pay, and that's our priority - plus having enough of a nest egg in the business to cover several months of them and anything else that may come up without needing to worry. We also love our current house, it's near lots of our friends, it's not overlooked, it's very convenient, we have lots of great memories of our pets there, it's just feeling too small for us really, plus the area isn't as good as it once was and one of our neighbours is annoyingly nosy/intrusive. Our life at the moment is very chilled, we're lucky to not have to worry about money because our costs are low (no debt) and very easy to reduce outgoings if we wanted (e.g. not eating out as much). Would you go for the lovely unique forever home or opt for an easy life and travel/wait to move until house is paid off? AIBU - buy it Not - don't buy it

AllCatsAreAutistic · 11/05/2024 19:50

Do not underestimate the joy of being mortgage-free.

maddiemookins16mum · 11/05/2024 19:36

No way would I take on that kind of debt.

Thehalls191 · 11/05/2024 18:42

I don't think it's worth losing your peace of mind over. Your current set up sounds really lovely.

Original poster

badatdecisions · 11/05/2024 18:28

Stoufer · 11/05/2024 18:07

Is letting your existing property part of the plan? And would the existing house have a mortgage on it? (I presume buy to let). You have to remember that you will be paying 40 per cent of the rental income in tax. And if you have a mortgage on it, then you will be paying 40 per cent of the rental income, even before you make your mortgage. So if rental income is £1000 per month, and buy to let mortgage is £500 per month, you would be paying 40per cent tax on £1000 (after certain fees and expenses) before you have paid the mortgage. With only a small tax relief applied after that. You really need to speak to a financial adviser about this. You would also become liable for capital gains tax, if ever you sold your existing house… ie tax on a proportion of the gain (increase in value) since you have owned it. And there are hassles and fees as a landlord. My vote would be to sell the existing house and have a smaller mortgage on the new house - but continue paying the mortgage at £2800 (ie £1000 over the mortgage he amount), to pay it down quicker. Saving interest on mortgage payments is far far more lucrative than returns on renting at the moment - by a long way. But do check with a financial adviser…

Thank you, these numbers are really helpful.

I think we'd have to pay the mortgage off on the current one or accept that it will also suddenly jump up higher as switching to a BTL mortgage will no doubt trigger much higher interest rate payments from the old 1.5% ish we have currently. But I think to do that we'd have to take the money out of our business. Maybe buying the new house through our business makes more sense, but then it's also riskier I guess.

Definitely need to talk to a financial adviser for sure.

Thanks again.

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TheOneWithUnagi · 11/05/2024 18:24

Sounds like you can easily afford it. Our mortgage is similar and with a lower income and it's comfortable and we can still afford to travel and enjoy ourselves along with childcare costs.

Mortgage isn't all sunk costs either, only the interest part. If the alternative is savings/investments then it's an obvious yes to me.

user1497787065 · 11/05/2024 18:19

If the larger house is affordable I would be going for it. A far better investment than holidays and eating out.

Stoufer · 11/05/2024 18:07

Is letting your existing property part of the plan? And would the existing house have a mortgage on it? (I presume buy to let). You have to remember that you will be paying 40 per cent of the rental income in tax. And if you have a mortgage on it, then you will be paying 40 per cent of the rental income, even before you make your mortgage. So if rental income is £1000 per month, and buy to let mortgage is £500 per month, you would be paying 40per cent tax on £1000 (after certain fees and expenses) before you have paid the mortgage. With only a small tax relief applied after that. You really need to speak to a financial adviser about this. You would also become liable for capital gains tax, if ever you sold your existing house… ie tax on a proportion of the gain (increase in value) since you have owned it. And there are hassles and fees as a landlord. My vote would be to sell the existing house and have a smaller mortgage on the new house - but continue paying the mortgage at £2800 (ie £1000 over the mortgage he amount), to pay it down quicker. Saving interest on mortgage payments is far far more lucrative than returns on renting at the moment - by a long way. But do check with a financial adviser…

cheddercherry · 11/05/2024 18:02

I honestly couldn’t fathom spending that on a house if I didn’t absolutely have to. I’d be travelling, having little daily luxuries or things that make life just a bit nicer, eating out more, going out to see/ do things. Basically living life beyond paying a whopping mortgage BUT that’s just me. I work for myself to be able to live more flexibly around my family, travel when we want, do the things we want to do, not so I can squirrel or spend more on bills. The house for me is our home yes, but it’s not my life. It’s all individual though, we’ve had a string of older (but not very old) family members/ friends who we have lost suddenly or who have had diagnosis/ a change in circumstances and regret not doing more. So while we’re setting up for the future we’re not beholden to it, it could all change in a blink.

But if you enjoy a lot of time at home and that’s what makes you happy and a bigger house is what you want and you can easily afford it then why not?

Nomechange1 · 11/05/2024 17:58

badatdecisions · 11/05/2024 17:09

What would you buy? I guess put it into savings/investments?

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Ha no. Travel. Experiences. Life

TemuSpecialBuy · 11/05/2024 17:25

badatdecisions · 11/05/2024 17:12

Net profit from our business is roughly about £15k-20k/month, we typically take out about £4-5k/month for ourselves (bills, mortgage, eating out, buying things, some for savings, holidays). I know it probably sounds crazy but I don't trust it will be that way forever/long term, especially with the economy how it is and a downturn in sales. Plus it will go quickly with a big jump up in mortgage because we'll be higher rate tax payers then.

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You can COMFORTABLY service the new larger mortgage at 2800.

At 1800 it is a doddle...
We have similar mortgage and a lower net income.
It was and still would be a breeezzzzzeee financially if it wasnt for the kids 😅
Pre kids we did Michelin meals and theatre 1-3 x per month, ate out 2 - 3 x per week and had about 4-6 weekend city breaks, a ski hol and 2 weeks in the sun and still maxed out our ISAs....
It makes no sense to be cramped in a terrace when you are earning so much.

Ultimately if it really went tits up.... you could extend the mortgage on the new place to lower monthly payments or get a lodger.

SapphireOpal · 11/05/2024 17:18

So you make £200k a year? Yes I'd be going for the £2800 mortgage. There's no point staying in a small house that's making you miserable when you earn that much.

Original poster

badatdecisions · 11/05/2024 17:17

Maraudingmarauders · 11/05/2024 17:12

If you have the option to keep your current house and could still take on a £2,800 p/month mortgage, surely selling your current house and using it as deposit on the new one would bring your monthly repayments down enormously? Am I missing something?

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It looks from the calculators like it would bring it down by about £1k/month, which is around the same as what we'd get for letting it I think (possibly we'd get more for it as it's a student area and they pay more as a going rate). Over time it probably means paying less interest on the mortgage would work out better though?

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Twiglets1 · 11/05/2024 17:16

Sorry @badatdecisions I do sympathise with you being estranged from a family member. That's very hard.

But I think you would be making a poor financial decision to own 2 properties when you only want one. Paying two lots of mortgages etc. There must be another way to ensure that the estranged family member knows how to get into contact with you if they ever really need to/want to.

BIossomtoes · 11/05/2024 17:16

badatdecisions · 11/05/2024 16:57

We can't extend at all unfortunately, it's a mid terrace property and very tiny back garden (it does sit on a canalside though, so we have mooring and nice water views - which is why we aren't overlooked).

That sounds gorgeous. Why would you want to give up something so idyllic? Stay put.

sleekcat · 11/05/2024 17:15

I would stay in your current house. We would have stayed in our small house if we didn't need another bedroom. Sometimes I think about how nice it would be if I was still there with no mortgage, could work less and spend money on other things etc,

Original poster

badatdecisions · 11/05/2024 17:12

SapphireOpal · 11/05/2024 17:01

I'd probably go for it in your position tbh. You spend an awful lot of time in your house, I'd consider it worth it to have a lovely one if you can afford that mortgage, which you clearly can if it's being offered. How much do you both bring in a month?

Net profit from our business is roughly about £15k-20k/month, we typically take out about £4-5k/month for ourselves (bills, mortgage, eating out, buying things, some for savings, holidays). I know it probably sounds crazy but I don't trust it will be that way forever/long term, especially with the economy how it is and a downturn in sales. Plus it will go quickly with a big jump up in mortgage because we'll be higher rate tax payers then.

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Maraudingmarauders · 11/05/2024 17:12

badatdecisions · 11/05/2024 16:59

If one came up we'd definitely go for it, but the halfway between the two seems to be very overlooked (usually new builds) in a less convenient location without much of a size upgrade, so it feels like it would be worse than both options.

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If you have the option to keep your current house and could still take on a £2,800 p/month mortgage, surely selling your current house and using it as deposit on the new one would bring your monthly repayments down enormously? Am I missing something?

Twiglets1 · 11/05/2024 17:11

badatdecisions · 11/05/2024 17:08

I'm very emotionally attached to it, I know that's not a great logical reason. It has memories of my pets and I like to think that a previously close family member I'm estranged from might knock on the door one day in future, I know that's unlikely and a bit silly.

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You're being illogical because you would be choosing to make yourself more financially vulnerable than you need to be for no good reason.

SapphireOpal · 11/05/2024 17:09

NeedToChangeName · 11/05/2024 17:01

Perhaps widen your search, yo look for a mid way house? That's a big jump

Don't forget some of it will be interest. Even if they were taking out the same size mortgage as before it would be probably be £750 rather than £500 now because of the interest!

Original poster

badatdecisions · 11/05/2024 17:09

Nomechange1 · 11/05/2024 16:59

I would save the nearly £28k(!!!!) a year to spend on other things.

What would you buy? I guess put it into savings/investments?

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Original poster

badatdecisions · 11/05/2024 17:08

Twiglets1 · 11/05/2024 17:05

Why wouldn't you sell your current one so the mortgage is less on a new one? Your explanation didn't seem to make a lot of sense. By selling your current house you would be far less likely to struggle paying the mortgage on the new house, plus no need to pay extra stamp duty.

I'm very emotionally attached to it, I know that's not a great logical reason. It has memories of my pets and I like to think that a previously close family member I'm estranged from might knock on the door one day in future, I know that's unlikely and a bit silly.

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Original poster

badatdecisions · 11/05/2024 17:07

RedRobyn2021 · 11/05/2024 17:00

Why are you moving?

We need more space for our hobbies really, and we live in the house we lived in when we were students...we've moved on a lot since then. I guess this is it, we don't NEED to move, other than our nosy neighbour increasingly stressing me out, and being worried about some shady people hanging around the area (I think drug deals). We also have a very different lifestyle to when we were students, and our house doesn't really match that. It's a great starter home or great student let, it's just time to be more of an adult I think. I'd like to do gardening and things like that as well.

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Twiglets1 · 11/05/2024 17:05

Why wouldn't you sell your current one so the mortgage is less on a new one? Your explanation didn't seem to make a lot of sense. By selling your current house you would be far less likely to struggle paying the mortgage on the new house, plus no need to pay extra stamp duty.

NeedToChangeName · 11/05/2024 17:01

Perhaps widen your search, yo look for a mid way house? That's a big jump

SapphireOpal · 11/05/2024 17:01

I'd probably go for it in your position tbh. You spend an awful lot of time in your house, I'd consider it worth it to have a lovely one if you can afford that mortgage, which you clearly can if it's being offered. How much do you both bring in a month?