to mortgage ourselves over our heads?

[NCFC4now]

DH will read this so I suppose your opinions will help settle a debate.

DH is 32 and I am 27. We currently own a 3 bed semi Victorian house, it is in a desirable area we love, in the 18 months since we’ve moved in the value increased £75k (bank mortgage valuation) because of the housing bubble.

We over pay our mortgage every month and have a growing amount of equity (especially with the increase!)
However, whilst I love our house, it doesn’t have parking and I find the garden just a bit sad (neighbour has huge trees that block out a lot of sun because the garden isn’t big). Due to the area, parking is difficult and you tend to have to park down the road from your own house.

Because of our location, which we won’t compromise on, a 4 bed with parking, nothing fancy will be £1m. We can get a mortgage for £800k. In my mind, we should wait 2 years (fixed rate ends) and save as much as possible and go for it.

Using present rates available to us, our mortgage minimum payment would be £2.7k a month over 30 years. We can afford this but would mean we can’t really do a step wrong. It would also mean our savings are wiped out due to SDLT so would need to replenish those.

I grew up in poverty and we have achieved everything without any help so I suppose a big house has always been a symbol of achievement to me.

Is it a dumb idea? Tell me your thoughts! I am a bit scared about losing our jobs and whilst DH is a teacher so safe, his extra income comes through a business he runs which I think is stable but you never know. I also hate working and have some mental health issues. Also this could be made worse financially if we do have kids as planned in a couple of years…

DH wants the house but doesn’t want the debt and thinks we should stay put. My argument is simply that having a child and no parking space will cause a breakdown at some point if I’m already stressed whilst fit and childless about the situation.
Thanks

Personally no, I wouldn't mortgage yourself to the hilt in the current climate. Cost of living is rising quickly and I think we'll start to see interest rates back up to pre-2008 levels in the next 5 years. Can you afford for them to go up to say 6% or more?

@Lweji

A house price crash happened not too long ago, at least for those of us who are over 30.

It didn't affect most people though unless they bought at the top of the market then were forced to sell at a loss. We bought our current house in 2006 when prices were pretty high. The price fell slightly in 2008 and then for a few years increased by inflation, then started going up again at a steeper rate. We still have a house that has more than doubled in value since then.

What would really stuff a lot of people is an interest rate rise, and that is a real possibility if inflation gets out of control. Most of my life interest rates have been low - first mortgage was a 5 year fixed rate of 5.5% which seems steep now! One mortgage is at 1.04% at the moment. I remember when I was little interest rates were 15% at one point.

It didn't affect most people though unless they bought at the top of the market then were forced to sell at a loss.

It still happened, even if some people didn't feel it.

What would really stuff a lot of people is an interest rate rise,

Good point, though. Something to really consider if finances are likely to be stretched. And it could also affect house prices.

If you bought a house in 1989, then 10 or 15 years later it was worth much more.

In simple terms, yes. Relatively, no. High interest rates and inflation also have to be taken into account.

Relatively yes, although I accept that interest rates and inflation need to be taken into account, but still yes yes yes.

And interest rates can be fixed, certainly for 5 years, and probably for longer although that brings it's own risks for OP.

And interest rates can be fixed, certainly for 5 years,

They can now. They won’t be if interest rates start going up. It’s a distinct possibility that lenders of fixed rate deals would start to go out of business. We’ve already seen it happen with energy providers.

I just think we are entering a period of un-certainty with effect of Brexit unknown but almost certainly negative for most people in the UK.
But I also see lots of people who take a gamble and do move up and ahead really quickly.
In your shoes I would probably go for it - but I think you might have to give up the idea that both you and your dh can work pt in the near future - although some people manage to do that too!
Some people seems to be Teflon coated, the shit stuff never sticks!

Don't forget to include council tax in your calculations. I'm one of the top bands and mine is £260 a month

@Blossomtoes

And interest rates can be fixed, certainly for 5 years,

They can now. They won’t be if interest rates start going up. It’s a distinct possibility that lenders of fixed rate deals would start to go out of business. We’ve already seen it happen with energy providers.

Which is a good reason for doing it now!! If she moves in a few years time, interest rates are likely to be much higher, and on £800,000 that will make a huge difference. But she can fix now and low, which is why I think she should. Her offer is with Barclays - they are too big for the Govt to allow them to fail, although do accept others may well fail, and of course, there are many mortgage prisoners from similar things in the past who are still suffering the consequences of this years later. Again though, it's often easier to pay a mortgage than get a mortgage (that's basically my situation, although I have a mortgage and am not a mortgage prisoner, it's not a great mortgage and I couldn't get a better/bigger one, despite good equity, never missing payments, no other debts etc). This is why I think OP should make this big move now when she can - with kids and higher interest rates she won't be able to get the mortgage, even though she may well be able to in fact pay it.

I would not say I am normally risk averse when it comes to housing but I think I would be wary in your situation. What happens when you reapply after a fix has ended with children (which will almost certainly be taken into account when the bank/building society stress tests your income, on top of that you may have expensive childcare). Can you move slightly away and get parking. £800,000 is a very big mortgage and you may effectively become trapped when other banks etc will not loan to you due to child costs. Interest rates are currently very low and lots of media also talks about inflation rises and cost of living increases.

@NCFC4now

We can afford this but would mean we can’t really do a step wrong

That is so true! No "falling pregnant". No "losing jobs" . No "getting ill" and so on. I wish you so much luck these days. Our first house was £4000 with mortgage of £28 per month. [and pet dinosaurs]

We took on a £500k mortgage. Completely dependent on one salary really as my husband earns a lot more than me. (I don't have a big problem with that really as if you are single the rent/mortgage is based on one salary and no one says don't buy the then!)
Almost immediately he was made redundant which was very stressful. I was on maternity leave with 2 kids at home. Thankfully he found another job.
A bit of me regrets buying something so expensive and a bit of a doer upper because I've been unable to go back to work and can't for the foreseeable so we are stuck in an expensive but not ideal house. Our circumstances are not what we were expecting. We don't have lots of spare cash for nice holidays etc. However we love the location and if finances improve we have the space to extend/ remodel as desired. The schools are good and the area is v family friendly. We could live here forever. If anything meant we had to sell we've built more equity in our current house than if we'd stayed in our previous London place. It's just v annoying we probably be paying off the mortgage right up to retirement however we are living in a lovely area while we do it 🤷‍♀️
If you do decide the move and you are planning on kids make sure you get to grips with schools and catchment areas before you move. Remember what is a priority for you now may change.

TBH I think you would be very unwise to take on such a large debt ,as well as paying for Nursery fees and so on . We have no parking here.(lived here over 20 years!) managed OK. No one can tell the future and if Interest Rates go up only slightly then you would be struggling .There was a recent thread on here re a lady with a large family,only one wage and no car/holidays everything that makes life fun! She was saying that they are only a few steps off visits to Food Banks .Its very precaurious and I think it is mad to consider such a step

Interest rates won't remain low foreverhow will a rate of 5% or more affect your finances.
Find something more affordable that allows for the expense of having a family, maternity leave and interest rate increases to give you some financial freedom.

I wouldn't. We just moved from a rented flat into our first house, and even though the mortgage is only 21% of our take-home, I still feel a lot more squeezed than with the flat. We used to save about 50% of our income and now we save fuck all. Every month we're haemorrhaging money on the house, the garden, new car because I crashed ours....and there's things you apparently have to do to a house that I never even thought about (pruning trees, window cleaning, gutter cleaning!). We don't even have kids. Plus a huge mortgage leaves you no wiggle room for going PT, mental breakdowns, change in circumstances, recessions e.t.c.

@Wilkolampshade

Suck up the parking and do a loft conversion instead?

she doesn't have any children so I struggle to believe OP needs extra space right now!

@Ilovefluffysheep

What on earth do you spend your money on? Seriously, you say between you you take home around £8k a month. That's a huge amount.

You say you eat out a lot, but don't spend much on other things. Yet you overspend each month? Are you really spending thousands of pounds a month eating out?

I was wondering that… these kind of earnings/house prices/mortgages blow my mind to be honest.

We earn less than half of that between us and still save, eat out, have holidays etc. We live much more cheaply though. Cheaper part of the country. We could of gone bigger but the quality of life day to day means so much more to me and we are in a lovely area.

However I’m still quite concerned about rising costs happening now and in the future , mortgage/bills are affordable just about on on one wage. While @NCFC4now has a great income I would want to be planning anything risky right now to be honest.

*I was wondering that… these kind of earnings/house prices/mortgages blow my mind to be honest.

We earn less than half of that between us and still save, eat out, have holidays etc. We live much more cheaply though. Cheaper part of the country. We could of gone bigger but the quality of life day to day means so much more to me and we are in a lovely area.*

I think it's London TBH. I earn 35k in the Home Counties and have always managed to have a nice life, go out for dinners, save, go on holiday e.t.c. However going into London is ridiculous - cocktails are £13 plus service charge, meals out end up being like £45pp, everything is so bloody expensive. We spent about £200 on a night out once you count up food, drinks, taxis, trains, kebab! London workplaces also seem to constantly be going out for lunches/drinks, whereas in the suburbs we don't really do much of that out of the office.

My friends renting a 1 bed flat in Canary Wharf pay twice as much as I do per month for a 3 bed semi. So everyone needs to earn a lot more to keep up the lifestyle.

I come at this having been on both sides of the argument.

We've bought and sold lots of properties to climb up the ladder and several times had mortgage interest rates in double figures. We always managed due to good health, full employment, no childcare costs and some savings. None of these things are a given. By nature, when moving up, we were always very frugral and happy to be so, no holidays or eating out etc. We also never maxed out on what a lender would give us, we always wanted a bit of a cushion and to feel fully in control, as much as we could be. We only bought properties on the basis of how easy they would be to sell on if we had to sell in a hurry.

Would I do the same in the here and now? No, I would be much more cautious due to the uncertainties surrounding the fallout from Brexit and the pandemic. I'm also accutely aware of both the financial cost of children and the commitment of time and energy, not to mention what toll it could take should a child have additional needs.

What I would do in your shoes @NCFC4now is a total life overhaul.

I'm confused about some of your maths and financial planning and the mention of recent garden leave. If you changed jobs quite recently what job security do you have and can you be certain maternity leave policies will stay the same? and government contributions, if any, which could stop at any time. You really need to do some thorough research about how family life works.

Like a previous PP I am concerned that you're effectively earning three incomes and a significant propertion of that is DH's side business. Working as a teacher in a deprived state system is not short hours or low stress, volunteering and also running his own business is a massive undertaking.

My advice in this life overhaul is start saving and living well within the means of that saving. You say you work from home, or get the train, you only buy second hand clothes for eco reasons and yet you have two old (less energy efficient?) cars despite liking your entertainment so close to home. Do a trial run of how life would be if you took this step and had a child too. While I don't want to get on your back, I do have to say I found the mention of an eventual inheritance very distasteful and on top of that, need to point out that this is far from a given if elderly parents need special care.

Instead of fixating on the things lacking from your present home, try appreciating what you do have a bit more. By that I don't mean being grateful, I mean enjoying the positives rather than bemoaning the downsides. A driveway and a bit more space may not be worth any added stress you could incur. Too often in life we feel like we want to rush to the end goal and don't enjoy the journey.

All said, I'm not particularly risk averse, but in your shoes and with your understanding of some of the main issues going forwards, I would follow a much more cautious path.

If you bought a house in 1989, then 10 or 15 years later it was worth much more.

In simple terms, yes. Relatively, no. High interest rates and inflation also have to be taken into account.

Really? my parents house was about 60k in the mid 80s & they sell for 2m now.

They didn’t pay £60k for it though, did they? Interest rates were ridiculous for almost the entire duration of their mortgage. Inflation was also sky high so money was worth considerably less when they paid off the mortgage than when they took it out. So they paid a lot more than £60k.

Then, of course, if they sold it, they’d have to pay £2 million to get a comparable property. The money’s just fairy money until they no longer need a home. And, if house prices go down, so has the fairy money.

So, yes, it’s all relative.

I can understand people who have only known boom thinking bust can never happen but it’s inevitable because the economy is cyclical. The thing to do when a storm’s approaching is batten down the hatches.

But housing has defied logic & prices which should have been corrected years ago keep rising.
After 08 lending changed & many home owners have significant equity so it's too simplistic to say the past will repeat again. Unfortunately assets are the best vehicle for making money.

House prices have kept rising because interest rates have been at record lows since the 2008 crash, so many people have very big, but cheap mortgages.

Current government policies, along with the unprecedented gas price increases are stoking inflation, the only way to put a brake on that is increasing interest rates. And that's on the way.

Exactly that @wewereliars. And there are enough Tory voters with savings and no mortgages for that not to be politically catastrophic.