£210k mortgage?!

[LOUNIC]

Hi everyone!

New to this forum and just looking for a bit of advice.

I know we should know the answer to this question, I would just like other opinions on it as it's a big move we are thinking about making!

I earn £37k per year, husband earns £29k so combigned £66k. We have 2 kids...1 & 3. We staying in a flat at the moment paying £450 per month on mortgage which we can very comfortably afford. I have yearly increments and salary will go up to £38.5k at the end of May and there after if I get promoted I would be on more (just thinking about the term of the loan..payments should get easier as we earn more!)

We have a loan for £198 per month and a credit card which has 4.5k on it (plan to clear this with the sale of the house/savings) also car payment is £168 but only have until sept 2015 and it is then paid off.

With the sale of the house and savings we should have around £22k hopefully. Which will probably mean a 95% mortgage as we would need money for fees etc!

We have approached the bank and they have gave us a mortgage 'promise' based on our income/debt and it has actually came out quite a bit more than £210k that we could afford. But I am very cautious and don't want to over stretch ourselves.

I just wondered if anyone else is in similar circumstances?

What are your thoughts?

Thanks for any responses! Lou ??

Not sure what your monthly payment would be with the new mortgage, but it rings alarm bells that you are 'comfortably' managing your current mortgage but have what is clearly a large loan and a large credit card debt - are these debts from an earlier stage?

I would not dream of taking on such a big mortgage with so much outstanding debt - if you can "comfortably afford" £450 a month on a mortgage why have you got a credit card debt and a loan and a car payment as well... borrowing habits are hard to break..

I think you are wise to be cautious

Did you tell them about your other debts?
Do you have much equity? Banks are generally prepared to lend more if there's enough equity in the property they'd always be able to recover the debt if you default.

But yes, banks are generally prepared to lend considerably more than we feel we'd be comfortable with. I think their version of affordability is if you stopped spending anything you didn't need to (phone contract, running a car, savings, childrens' activities) could you afford to pay the mortgage and necessary bills. Ours is can we comfortably continue our current lifestyle with some safety margin.

It is reassuring though that you're not going to have any problems when it comes to the actual mortgage application with what they're prepared to lend.

How much are you putting into savings each month at the moment? Look at it thus way, a higher mortgage means less money you have for putting into savings if you are keeping all other spending the same. The money has to come from somewhere.

Once the car loan stops, then would that mean your car is older, more likely to have higher fees to maintain it? Would you need to start putting money aside for buying a new car? The car loan thing never really ends, the money just gets allocated to a different pot, such as repairs, deposit for next car.

With high property prices, the bank knows it can get the money back. If the market falls, leaving you in negative equity, the bank can still get a big chunk back and then hound you for years to come to payback the remaining debt.

Do your own calculations, see what you feel happy with. Look at current mortgage interest rate, add a few more percent, are you still happy if that rate goes up?

What would the monthly repayments be? I'd expect that much on a decent rate to be around £1400. Which wouldn't be feasible on your incomes in my circs.

If you can comfortably afford payments now, why on earth do you have a loan and credit card debt, and how likely is it you'd need those in the future? If the £210k is a small proportion of the value of the new house, the bank will lend happily as it knows it can sell the house if you default and make a huge profit. Really not a good idea.

Banks would lend us over twice what we could easily repay. You need to work out your monthly budget with large contingency and don't be tempted to borrow more.

Thanks for the responses!

The credit card would be paid off with the sale of our house, we will have equity in out house. This was the reason we were considering a 95% mortgage to have a deposit and clear the cc debt. I know
It would be more sensible to pay off the debt before we consider moving, thanks for your advice.

The only reason we are considering is a house has came up in a lovely street in the area we want and is a great price, it would be a forever home that we could work on as we go along. And the houses on these streets are generally £270-£280k. The house needs cosmetic work and the owner is wanting a quick sale which is the reason for the price.

We have a car loan debt as we go bought a bigger car when our first daughter was due and at the time we didn't have £10k to spare. This loan will be paid off next year.

The £198 loan is due to being stung with a together mortgage from Northern Rock..unfortunately we would probably not be able to pay this off with the sale of our home.

Thanks again for the advice, you are all saying what I'm thinking and that's why I am very cautious x

**if you can "comfortably afford" £450 a month on a mortgage why have you got a credit card debt and a loan and a car payment as well... borrowing habits are hard to break..

Just to answer that question...the loan is part of together mortgage we took out when buying our first home (basically a mortgage and loan equalling about a 120% mortgage as we had repairs to do and at that time banks threw money at you!) we were young and are paying for that mistake now!

The credit card basically was a holiday and a couple of other things, we are paying at least £600 back per month just now and it is interest free for 1 year. I would continue to pay this amount or more each month to clear it (have never paid minimum payment). However if we bought the house we would clear it with the money we make on the house.

The car loan as I said was because we needed a bigger car at the time. Don't really know anyone who can pay outright for a good car nowadays!

Anyway if we went with the house we would have our mortgage payment and the northern rock loan which would be our outgoings (apart from all utilities, ins, sky etc etc).

I am now feeling that we are in some sort of mess with the responses lol but I do think we are pretty good with our money!

Thanks Lou

If you can clear the debts with the sale and start a fresh then do a very detailed breakdown of in and outgoings. We did similar and it was tight for 2 years but ok once nursery fees went !!!

my concern is 'what happens if you lose your jobs?' which can happen to anyone at any time. What kind of savings cushion do you have?

We have pretty secure jobs, well I do anyway I work in the Police and my husband is an electrician. We also have insurance covering us atm which I would also have if we bought the house. Basically if husband was to be out of work the insurance helps with the mortgage etc for a short period.

I don't want to not go and get a bigger house being scared of things, I know losing jobs is a possibility but if I can put insurances in place and also keep up with our savings then hopefully we would cope with that.

My parents have always said their biggest regret in life was not getting that bigger house while we were kids, they brought us up in a tiny house as they feared my dad may be out of work and they wouldn't be able to pay a bigger mortgage. In reality it never really happened and they didn't move to that bigger house until they were 45, they wish they weren't so scared and went for it 15 years earlier!

I know there are risks..but a lot of people seem to manage to do it!

We bought space and garden and good school area. Well worth it. The house can get decorated later. Who cares if it's dated?

Hi OP hope you don't mind me asking are you looking at fixed rate and for how long? There's been rumblings for a while that a rise is due (supposedly after the election/May) although this is only meant to be small - like less than 1%. But either way you'll need to factor in if rates go up and if you can afford repayments when your mortgage product ends.

Also have you had a full survey? The quick sale/cosmetic thing would have me a little suspicious. And if it's structural you'll need to be sure you have money to sort it/insurance will cover you.

I'd think carefully. Its more than three times your annual joint income. How old are you? Would it be a 25 year mortgage? Five percent equity isn't much given that you'll still have other debt.

We took out a mortgage that was 3 times our joint income but we had 40 percent equity and so far more of a buffer.

Hi, thanks again for the advice!

It's a fixed mortgage 5.19 % for the 95% mortgage. Basically would be £1070 roughly per month on a 30 year mortgage.

My aim would be to get another mortgage deal after the few years fixed rate to get a better rate and hopefully by then there would be a bit of equity in the property.

As I said before we are wanting a forever house and believe this could be it.

The reason we think we could cope with that payment is until recently we were paying £600 in childcare fees for the kids. We now have changed our work patterns and eldest in nursery and family helping. So when we did pay that we were
able to live comfortably...

And yes we would be buying a potentially beautiful big house that we could work on, in the area we want for schools etc.

I wouldn't buy a house without a survey so yes that would be done..according to the home report it has no category 3 repairs needing done (immediate).

Thanks again for your thoughts. It is a big big decision and I appreciate it x

We are 32 & 33 x

I'd go for it - unless you're planning more kids in the next few years, you'll be through the worst of the childcare costs in the next couple of years and you'll be able to enjoy the space now.

Obviously make sure you're not buying a money pit with a decent survey - but you can take your time doing the house up as you'd like it.

You sound like you've thought through the money side and have secure jobs - there are always going to be 'what ifs' but they may not happen so get on and enjoy your children's childhood

Hi Lounic thanks for that, yes I've been looking at mortgage products recently (looking to fix) and you do get much better rates at 85% LTV. As other people have said I'd do a spreadsheet of in/out.

I've always been wary and it paid off for us (redundancy/3rd pregnancy) having a small mortgage has meant we don't feel the pressure, my siblings otoh are mortgaged up to the eyeballs (2x properties each) and their stress is palpable. Just be prepared for the unexpected.

I guess it depends on the rest of your lifestyle as to whether it's affordable or not. DH and I used to have a mortgage similar to that, but we were earning about double your combined salaries. We still found it tough going, but our nursery fees for DS at the time were well over 1,000 per month and we tend to spend a lot on food, going out etc. - you have to look at it all together.

What I would say though is that it depends how comfortable you are with not putting any money aside each month. Part of the reason we found it tough is that we put 500 a month into a savings account for holidays, emergencies etc. - but that wasn't something we wanted to compromise on, and when DH's car went bang and we had the money to buy a new one outright, I was glad we'd done it that way.

Also depends how you think you'll cope in the future as the kids get older. So another example - we struggled to find childcare when DS went to school and had to get a nanny because there was no after-school care and no childminders with spaces. It was that or move DS's school which we didn't want to do for his sake. But that was an expense that we probably hadn't anticipated when we took out the mortgage, so it was another thing to fund.

I'm not saying don't (although personally I'd be very wary about borrowing more than 3x your salaries and for 95% LTV - but that's just my own cautious tendencies). But just make sure you go into it with eyes wide open and you've thought about the various what if scenarios. If you're still comfortable at that point, then it's your call!

Our joint income is similar & we have 6k on a 0% credit card (debt related to moving home) plus car loan of £125/month. But our childcare costs are higher (£750 monthly) Our mortgage is £1050/month.

Things are tight but do-able. I guess the only thing I would wonder, was what would happen if family stopped doing childcare for you (ill health etc)

But it sounds like your income will increase & your debt reduce in the near future, so go for it.

I would do it tbh, you are the right age and in 'safer' jobs than many. There is always the worry of losing jobs but then I'm not particularly cautious and think that you should take opportunities when you can and not regret it in the future.

I would also be wary of relying upon your incremental pay scales continuing to exist. Its something many pubic sector employers are changing.

At your ages it is probably the right time to stretch yourselves (although a 30 year mortgage is a long mortgage). Just make sure you cut back elsewhere to give yourselves a buffer. Also be aware of the fact that interest rates are likely to go up. You'll be protected for a while because of your fix but when that expires the rates are likely to be higher, cancelling out any extra equity value.

It's a big payment to find but I agree, I don't think it will get easier to make the leap but do make sure you can live with it as is as not much cash leftover for home improvements

Great thanks everyone for some very useful advice!!

I'm not relying on increments to allow us to do it as I know what the public sector is like just now. In time tho I plan to go for promotion etc so in time I should (hopefully) be on a lot more money. This is only something we are thinking about as it could make things easier and I would like to try and reduce the mortgage term as we go along.

Our lifestyles aren't particularly extravagant to be honest...average car, don't go out much, maybe once a month and 1 holiday per year but we sometimes like to holiday in the uk so would just continue doing that.

We are now of an age and with the 2 kids that the priority now is housing and having a good life in a great home, my aim is to provide a lovely family home for my girls and I don't plan on having any more!

I know the 30 years is a long term but as I said we are thinking we could do this initially then reduce it over time. Also in my job when I retire you get a lump sum/decent pension which would also help if there was still money to pay on it.

Thanks again x

Ps we are going to view this house tomorrow!