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

[badatdecisions]

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

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.

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,

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

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.

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?

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.

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.

Ha no. Travel. Experiences. Life

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?

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…

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

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.

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.

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

No way would I take on that kind of debt.

Do not underestimate the joy of being mortgage-free.

No one but yourselves can answer this as only you 2 know how much you value what you have verses what you want out of life going forward.
Only you know how risky or secure your business/industry is, and what your risk appetite is combined.

I personally think your current set up sounds lovely (nearly paid for, plus moorings !). I hate risk, I hate debt, I avoid all anxiety wherever possible, and I love to travel, so I wouldn’t buy the big house.

If you pay £500/month and you have around 3 years to pay off, then you owe around £18 000. If you are making £15-20k profit each month from your business and using about £5k, you could pay your motgage off within 2 months easily. If you have £10k spare per month, that's £120k per year savings. Just how big and expensive is this house you are thinking about buying that you will need a £2800 /month mortgage?

If you can afford it and still afford a reasonable lifestyle go for it. If things get too difficult you can always sell or rent out your first property.

I understand not wanting to leave the house where your beloved pets lived with you 💔 what’s the house like you are thinking of buying?

I’d probably stay put. But I’m interested to know what your business is! Sounds like you’ve built up a fantastic business to be so profitable, well done!

How can a house be too small for two adults that makes no sense at all.

For those who missed it....

Their NET take home pay is 15-20k per month.

The mortgage will actually only be £1800 it would only be 2800 if they dont sell the current house....

Their new "massive" mortgage would be approx 10% of their take home.

conservatively their disposable income would be £10k per month with the new mortgage (in reality prob higher)

I don't think I would and in fact doing the opposite just now, moving from what was supposed to be forever home to something a little smaller and much much cheaper. But that is my priorities which are to have less stress and work and more money to enjoy life. It does sound like your current house isn't right though and I think you would miss it much less than you think - I am a bit sad at leaving our house with all the baby memories but I still have those memories and now it is actually going ahead I am so excited

@TemuSpecialBuy no their net profit is that much but they are leaving a lot in the business. They're only taking out a fraction of this as income so net pay is around 4 to 5 grand a month. But do agree that they can easily afford the new mortgage