To not want to borrow maximum amount? Mortgage with DP

[LuDa4]

Can I ask for views on this please.

DP and I
Mid 30’s
1DC, not having more
Joint earnings - c.£65k
Joint monthly take home - c.£4200
No other debts or car payments etc
Deposit a c.£150,000

We can borrow up to £380,000 but would look at needing £250k which would mean a monthly Mortgage payment in the region of £1300-1400.

DP thinks we should push ourselves and get as good a house as possible within the budget.

I am more cautious and think we should leave some breathing space and be a bit more cautious.

He says the banks won’t lend us what we can’t afford.

After mortgage/bills, I think we will have around £2000 left each month not accounting for food.

Any thoughts on what we should do?

We maxed out and I have regretted it. We are now looking to sell and downsize to a smaller house with a smaller mortgage. We can easily afford our current mortgage, but psychologically it feels uncomfortable as we would not be able to as easily afford it if we had to remortgage at a suddenly much higher rate or if one of us couldn’t work.

It is a delicate balance between not landing yourself with too much in the way of monthly outgoings that cause stress whilst at the same time acquiring a home in which you can be comfortable and are not cramped or in an area you would prefer not to be.

I have always had a live for today mindset and have taken quite a few risks in my life, so based on this I think you should set the parameters of what sort of home is your basic minimum requirement for a comfortable life then look at the finances that relate to this.

I think you also had to factor in how long you plan to stay in the house. Will it be forever or could you move in 10 years

I currently have 5.5, post Truss fiasco so they do lend that much. Divorce downsizing now and reducing it loads but I could port it if I wanted.

In my experience the bank will lend more than you can comfortably afford to pay back. Just do the calculations yourself, factoring in the extra costs of things like necessary maintenance on a home as well. There’s no landlord to pay for a new boiler when the old one dies!
The bank was shocked when we didn’t want to borrow the maximum amount they were willing to lend. Despite times of financial difficulty we were able to hold on to the house. Having a very large mortgage is stressful and limits what else you can do.

As well as all the good points made on this thread, you also have to consider that a more expensive (and therefore presumably bigger) house will be more expensive to run - have you factored in the council tax, the cost to heat, insure and maintain it? And to furnish it if you're going for something bigger than you currently have?

For me it's more about buying what you need rather than maxing yourself out, 380K isn't a target spend. If you think you will have another child and you are going to need a guest bedroom then you will probably want a 4 bed house. Then you can look around for what is available and if that fits in your budget or if you might need to reduce the number of bedrooms or location.
I live in a old council house, it feels a lot smaller now my children are bigger. I don't think I can afford to move but the house has potential for an extension in the future. It also has everything that we need so moving would be for non crusical reasons like having a utility room etc....

The irony is my parents mention interest rates increasing suddenly shortly after they stretched themselves to buy their current house, about 30 years ago? They've talked about the stress and having to deny us kids things (I don't remember feeling like we were going without tbf).
Their advice is still to borrow as much as possible.

After mortgage/bills, I think we will have around £2000 left each month not accounting for food

Have you accounted for annual and irregular expenses before getting to the £2k or would they come out of the £2k. Eg if your car needed £800 of work today or you needed a new washing machine, do you have money put aside to pay for it? Likewise things like Christmas, holidays, school uniforms etc. What about when you need to replace your cars, can you pay for it or will you need a loan?

What about lifestyle? How much do you spend day to day? Some people would find the £2k plenty, others not, especially if it also needs to cover the other things I've mentioned above.

No, I wouldn’t stretch to that much or even two thirds of it, not in the financial climate, a very different one from five years ago or more. The unemployment rate it’s the highest it’s been for five years (as are home repossessions) and there’s the march of AI to consider.

I would agree with the advice to go for a house you can afford on one income, even if it would be tight, that person would have to take on extra work, etc.

We bought our house, mortgaged at about 80% of what the bank would have lent us (we could have gone about £200k higher but that seems obscene to me!). I got cancer and had to stop working 4 years later. Our mortgage is £1600 (for now) and that’s fine, and Dh can pay that himself. I don’t qualify for benefits that would make much of a dent in that, though some people seem to get huge amounts being off less sick than I am. 🙄 But it’s manageable.

If our mortgage had been £2500, say, it would have been a much more difficult situation.

I completely agree with you. We looked at the monthly repayments and made them affordable on 1 salary.
You also need to taken into account the potential costs for repairs, renovation work etc. Unless you have savings for that already, you'll need to put some money aside.

Remind your husband that:

1. current housing market is flat as a pancake... And predicted to stay like this or drop, there is not current prediction for growth
2. mortgage rates are unpredictable. Look at what happened to those who bought pre/during COVID and lost their house because they couldn't afford to renew their mortgage once the rates increased. If you max out now, what will you do if rates increase?

Why don't you look at getting another fixed term mortgage with a different lender?

I think there's a balance but there is no need to borrow the max if you don't need to to get a house that works for you. Definitely give yourself some wiggle room - things do change, some in your control, some not.

And your DH is completely wrong - banks absolutely will lend you more than you can afford. They do affordability checks that are forced on them but they lend as much as they can - it's their business and it makes them money.

I agree with you, I've always only taken out a mortgage on the basis that it could be afforded with just one of our salaries even if interest rates went up a fair bit.

Being maxed out leaves no capacity for career changes or illness or other financial priorities

I'd always urge going under your top limit.

Circumstances can change in an instant.

Case in point, my friend and her DH moved into a new home in October last year, taking on a mortgage again, after being completely paid off on their old house for some time. Both had decent jobs, him full time, her on about 3 days a week.
He's just been made redundant when his company announced they'd decided to close down the site he works at. He's been there at least 15 years.

Needless to say, they're feeling a bit twitchy.

Things can feel really secure and set in stone, but you just don't know what's around the corner.

I wouldn't be thrilled about your lower end either. That's a hell of a monthly payment. That said, I'm saying this as someone with more kids who is still paying nursery and after-school school and activities for them so there would be a lot more left over after that.

She'd have the single person rate, and lives in a different region to me where it would be less than half what we pay.

It is in the banks interest to lend as much as possible for as long as possible to maximise their profits. If they could do multigenerational mortgages to inflate house prices further and generate an even more secure income stream for themselves, they would.

The banks are not your friend.

If you have breathing space, you can choose to overpay or invest for your future. You may not need to sell your house if one of you gets sick or loses their job. If you maximise what you borrow, it takes only a short spell of bad luck to lose everything.

You're right. Husband's opinion is understandable but wrong. Give yourself reasonable headroom.
We take home (and it varies per month) an average of £12000 per month and wouldn't borrow £380,000.

£380000 borrowed plus interest paid over lifetime of mortgage is c. £633,000.
The payment might be £2110 per month.

If you borrowed £250,000 which would be
~£1390 per month and overpaid the difference in monthly payment into the mortgage between amount due and amount due with a higher mortgage, your total payment might be £331,000 and you would have paid off mortgage in 13 years and 2 months.

This would have saved you lifetime mortgage costs of £302000. What could you do with that if you invested it?

When in doubt, do the opposite of what the banks want you to do. Borrow below your means and hold a debt for the shortest time possible.

The problem is the old system of a bust being followed by a boom no longer applies, so recovery is stilted after every recession now, which the older generations do not seem to understand. We are still feeling the full effects of the 2008 crash never mind everything else that has come after it!

Oh my god imagine! I remember my teacher at sixth form (who would have been in her late thirties at that point) telling us about purchasing her house in Winchmore Hill shortly after finishing teacher training - absolutely unthinkable now for a NQT to be able to purchase a garage never mind a house in that area nowadays!

Houses don't always appreciate. It depends on where they are. My house price hasn't changed much for a long time.

I would not max your mortgage.

Meant to say I agree with @MountainWanderer

You are right. I would rather not borrow to the max and have a bit more money to spend on things I enjoy or to save a bit. Doing it your way means that if something affects your income it is maybe easier to cope.
In London, in the 80’s, we were forever being told we were ‘under mortgaged’ as if it was a crime.

DH and I could have maxed out our mortgage and bought a bigger house in a better location - this luxury only available to us within the last 5 years or so.

we decided not to and recently we’ve taken out a joint borrower sole proprietor mortgage with our DS meaning he’s now has a flat at 19 and while a student. We couldn’t have done this if we’d maxed out.

This should mean he graduates Uni with very little debt AND an asset!

You might be a long way from that but there are other somewhat unknown benefits from not maxing out your mortgage debt.