AIBU to take out this mortgage?

[helptodecide]

Hoping someone will tell me if this is a terrible idea or not before we proceed.
Myself (F24) and my partner (M29) have had an offer accepted on our first house. It’s £325,000 and we are putting down a deposit of £21,000. The mortgage we are going for is a 2 year fixed at 5.69% and it’s a 40 year mortgage. we can’t get any better without fixing for five years which I do not want to do in this climate. Our monthly payments will be £1600 gulp for 2 years. After the 2 years I’m hoping to remortgage at a better rate (fingers crossed the interest rates aren’t so abysmal by then!). For context although the house is expensive for a first home it is in exactly the area we want to be in, close to work and both of our families, and is a 3 bed semi with lots of potential for extension in the future (ie this could be our long term home). In this area we won’t be able to buy much cheaper (even a 2 bed terrace is £300,000).

I am trying to work out whether this is going to be affordable for us. Our combined income is at least £4500 (fluctuates between £4500 and £4800 depending on partners overtime, and I also do some online teaching as well). I’m a vet, my partner is a HGV driver, so both in secure work. We have no kids and definitely no plans for them in the next five years.

I’ve calculated our monthly outgoings on bills including mortgage, car payments to family for both of us (we both borrowed money from family to buy a car to avoid debt), car insurance for us both, council tax, gas and electric and petrol to be around £2800. This would leave us with £1,700-£2,000 month for food, social (we currently spend FAR too much on this and would hugely cut down), the cat, money towards the house (it’s liveable as is but lots of cosmetic work to do gradually) and savings.

I feel like this sounds okay, but I am currently saving £800 every month and to be honest not really having to budget at all as our current rent is only £800 between us. I know it’s an awful time to buy a house at the moment, but I’d rather take the hit for 2 years and then remortgage when times are hopefully better.

What do all you wise people think?

Seems perfectly fine to me. You're young enough to make that work, secure job for you, not old enough to have to make decisions about kids and fertility. Your wage will increase presumably. So seems absolutely fine. Congrats!

It is a huge chunk of income to pay on a mortgage.

Just to be sure when looking at your outgoings you have considered:

Mortgage
House Insurance (buildings and contents)
Life Insurance
Council Tax
Water
Gas & Electric
Internet
Mobile Phones
Travel too and from work
Car Insurances
Debt Repayments

Go for it! I think we spend the money we have and you might find it more fulfilling to be putting more money towards a mortgage and less to socialising and going out.

Money saving expert has a great budget sheet to go through just to be sure it’s manageable but I say go for it & congratulations!!!

I think you wouldn't have been offered a mortgage at that rate if the mortgage company had issues with it.

Trust that rather than the opinions of online strangers. They're the ones that street test your income.

Assuming you're both still living with family if the £1600 payment is worrying you?

Any mortgage you take out you need to consider if it will be viable if/when mortgage rates go up.

I think the only ones I haven’t considered here are phones (£20 each/month), home and contents insurance, and life insurance. Everything else should be included. I’m budgeting around £250/month for gas/electric/water

It sounds doable to me. Maybe you could look at the 5 year fixed rate to see what the difference in rate is? Just for completeness?

No we are renting. But we only pay £800/month rent between us so it’s going to be double the cost! Hence the panic!

I think it sounds quite doable with your good jobs.

It is a huge chunk of income to pay on a mortgage

It's 36%.

Also - yes consider rates going up. But you're fixing for two years. So also consider the equity you're building up, the potential increase in salaries, and the increase in property prices.

If worst comes to worst you can always sell. But that's unlikely.

I’ve looked. Would be about £200 cheaper a month, I’m hoping whoever that in two years time interest rates will be lower hence would rather be in a 2 year fix. I know you have to budget for them going up, but I feel like it’s not unreasonable to hope for some decrease!

Do it. Better to plough money into an asset of your own than into the pockets of a landlord, if you can.

Although make sure you have a back up fund! We thought our house only had cosmetic work to do, survey raised a slight damp bit but we thought we can manage that. How wrong we were! 75k later.... 🥴

So, you currently (as a pair) pay 800 rent, and save 800 (maybe more if your partner also saves). You admit there is plenty of scope to cut back on socializing, and are concerned that current rent+current savings isn't sustainable for a mortgage amount?
Sounds tight, but doable.

Sounds affordable for you, do it. I would probably go for 5 year fixed though and put the £200 saved per month into overpaying. Interest rates have been exceptionally low the last few years compared to historical rates, they’re unlikely to drop much in 2 years. Also overpay as much as you comfortably can alongside your savings.

I think I’m just used to saving a lot which obviously I won’t be able to do to the same extent if our housing costs double.

I can see what everyone’s saying about the interest rates, I’m only 24 so they’ve been lower than this my whole adult life so maybe the hope that they’ll go down is false!

It seems completely fine to me as a proportion of your joint income.

The 40 year term is a bit of a concern though - that’s a ridiculously long term and the interest you’ll pay over such a long period will be insane. I would recommend overpaying with whatever spare cash you can find, and when you come to remortgage - assuming rates have hopefully come down - look to keep your payments the same and reduce that term.

Yes I very much want to get the term down when we remortgage and if we are affording the payments well then this is definitely what I will look to do. Just right now this is the only way of it being affordable for us.

I was going to say I feel like we are an unlucky generation when it comes to house buying but I’m sure I’ll get plenty of people (probably quite rightly) telling me they had worse!

Go for the 5 year fix. The interest rates aren't insanely high- they have been artificially low for years. Use the £200 extra to overpay.

Suggest you check if your mortgage permits (1) overpayments if you can afford it and (2) a lodger, which could be a good way to increase your income if you need to

It sounds like a good choice of house and a big jump, but manageable. You could always have a lodger for a while if it was too tight.

I would do it. The house is still more affordable to you today than it will be at any point in future - rates are expected to go down, asking prices will only ever go up. With secure jobs I would absolutely get the best house you can afford and make it work.

I never played the interest game too much. I fixed depending on my financial and family outlook at the time. For example, I always factored in a 10% a year overpayment and tried to reach this as a savings goal. Once I had fixed I never looked at interest rates again until it was time to. Sometimes I fixed for 2 years sometimes 5.

If I were in your shoes I would fix for 5 years, adapt to the increased outlay and save as much as I could a year for an overpayment.

I would want the security of 5 years at this stage in the game.

40 year mortgages are the norm in many places. The main tool for me is having flexibility to overpay (bring this term down) and security of knowing my minimum payments over a fixed time. I plan financially from this point not a perceived possible saving on fluctuating interest rates.

However, I had children at the time and as you don’t a 2 year fix maybe a better fit for you.

Its fine, you are currently saving and paying rent of £400, total £1,200. Your mortgage will be £800 leaving at minimum £400 to save, Definitely gamble on interest rates coming down as inflation appears to be looking more controlled

Are you borrowing on a C&I basis or interest only