Mortgage advice - too conservative or too ambitious

[panettone]

We're hoping to buy a house soon AND to have a baby within the next year or two. I'm trying to figure out exactly what we can afford. We bring home a total of about 3400 pounds/month, and I estimate that this will be 2500/month on average over a year of maternity leave. Once I go back to work, childcare will be about 650/month (taking childcare vouchers into account). And once we have another baby (about a 4-year gap hopefully), childcare will be about 850/month.

I've figured out that we probably need 1000/month to cover essential monthly bills (food, utilities, petrol, phone, internet, tv license, insurance etc), but about 1500/month to be comfortable and be able to afford the occasional day out, clothes etc. So therefore, our mortgage should be a maximum of about 1000/month to be comfortable. But if interest rates rose above what we expect, we could afford 1500/month without losing the house.

The thing is, who knows what interest rates will be like in 5 years time once we have two little ones. So should I assume that the realistic scenario is that in 5 years time the interest rate will be 7.5%, and then make sure that would be 1000/month or less? And at the same time make sure that if interest rates went to 10% (worst-case scenario?), then the mortgage would be 1500/month or less?

Am I being too ambitious or too conservative here? Or am I just overthinking it?

Wow.. you are over-thinking lots of things.. Slow down..

One thing at a time.. I don't mean to put a damp spot on your thought..but.. believe me..life often just don't go the way you planned.. You are running well ahead of yourself with these plans..and I fear that any obstacles will make you trip and fall much harder then if you take it slower..try walking through your plans.. all sorts of things could change them. Loss of job, (Many have fantastic educations but loose work due to lots of events to include accidents) ..Of course it is good to have a future plan, but plans do not always work out the way We Planned.. I would suggest that you plan a home business of some sorts into all of this..Just in-case Your partner or yourself might have a fall..one never knows the future.. (I hate to be saying this but..my son and daughter found they could not have any-more babies . After there little girl passed away, (Even after 3 attempts of IVF) and I myself lost my 16 years old youngest son only last year..to a heart attach that we never knew he had problems with..in-fact he was (It seemed ) as healthy as could be and a great sports person.. Start with getting the home, Then look at getting an income that does not rely on you going out to work all day/hence child-minder fee's. Start it small while you are working and able to put time into it and not have that time being taken up by children.. Also once you have a baby..you may end up not wanting to go out all day leaving your new baby.. Slow down my lovely.. Buy a home big enough to rent out a room.. Put a TV,Microwave-oven, Fridge, kettle, toaster, cups, plates in it. and rent out as short lets..No use of kitchen.. That way someone will get a good deal, short 2 to 6 week lets are easy..because people only stay a while and you get a good income because short lets pay a bit more than long term lets..Then think about babies and slowly slowly does it.. If you keep on thinking it all out as you are at the moment.. you will drive yourself crazy..get stressed, and not even want to do the things that are fun and lead up to --Having babies..??? Just enjoy each stage..I am sure it will all work out for you
and I hope my words have not stressed you..But life can change our plans.

I would agree with the above not to make too many long-term assumptions - life has a habit of throwing up surprises. Keep one eye on about 4-5 years into the future and make realistic plans by all means, but focus your decisions on a 12 - 18 month rolling basis as that is going to be the most accurate.

Average BofE lending rates over the last 10 years or so have been more in the 5% region than 7 - 10%. They're expected to get back there eventually but the timescale keeps going back the longer the economy stays slow. If you want to protect yourself against big increases in rates, a fixed rate
mortgage for the next 5 years could offer peace of mind and enable you to budget. In your plans, as well as the day-to-day expenses, I would include building up some accessible savings or investments equating to 3 - 6 months' outgoings as a buffer against rainy days or unforeseen costs. If you are lucky enough to have children you'll find the costs can be much higher than simply child-care or you may even find you feel differently about the workplace. Also think about making provision for pensions. Life-expectancy being what it is, old age is on the cards for more of us than ever.

As the others have said you are over thinking things a little bit. I have kept a close track of mortgage rates over the last 10 years and they only hit 5% once in September 2008 for roughly about 3 months apart from that they have been lower than that.

I don't think you're over thinking, better to get a mortgage you can comfortably afford even if interests rates rocket (and they may) plus in the meantime that gives you time to stockpile some savings.

It's funny that you guys say we can't predict what will come our way. I think that was my point - I am trying to work out what mortgage we can afford in both realistic and worst-case scenarios! Of course we may end up not being able to have kids, or not wanting more than one, but I thought it best to figure them into the equation now, since that is our current plan.

I guess overall I was just interested in how others evaluate what mortgage they can afford. If we wanted to meet the info I wrote above, then the mortgage we would take out would be 75% of what the bank is prepared to give us. I think without kids we would be fine taking the whole 100%, but we do have to consider child care costs and possible interest rate rises down the line, don't we? Or is that just me?

The 3-6 months of savings for living expenses is a good point, and we have about 3 months so far. Good to hear that interest rates generally don't get as high as I was anticipating. Thanks for your replies. Some good advice, and a reminder that I should relax a little :)