Will the mortgage payments be too high ? Advice please

[Ozster]

I am going to try and keep this short.

We are family of 4 looking to buy in catchment area of a good primary and secondary school.

I am worried we will over-commit ourselves to a large mortage :(

Break down if cost :
Earnings per month=
Me £1600
Partner £1300
My side hustle £500

Costs (in new house)
Mortgage £1200
ALL other outgoings £1200

Which leaves us £500 from our salaries for eating out/kids sports clubs/treats etc
And £500 from my side hustle to save or over pay mortgages

Would this be cutting it too fine ? If I lose side hustle we will only have £500 left :(

Atm we lay £500 mortgage

A second option would be to move into a small, one reception room house instead of a nicer (still small ) 3 bed traditional semi .

I am so confused and stressed. Obvs we need to move for school but the large mortgage payments scare me.

Any advice please ? Or info on your situations that I can maybe relate to ?

Thank you

That is a very high rate. How long have you had the default? Is it close to 6y?

If your rate was to reduce to say 2% .. you'd be saving 200 quid a month (on a 25y mortgage)

Given this extra info, I’d sit right for two years until your salary goes up, or I would get a mortgage agreed in principle and see what effect Brexit has on house prices, as they may drop. They may also drop when the furlough scheme ends. They are riding high at the moment.

@OhamIreally Do you live in the real world?! Lots of people earn this. Do you think that every single one of them is happy on that amount and don't want to earn more? It's not as simple as just 'finding a way' to earn more

OP we are similar to your proposed situation - largely because DH got made redundant two years ago and hasn't been able to get a higher paying job. We have roughly £600 left after bills - this is for food, fuel, clothes, everything. There are four of us and we make it work. We could move to have a smaller mortgage but we are happy with our 'dream' house and not really doing much that costs money. It all depends where your priorities are. Obviously we would love to have higher paid jobs and are still trying very hard to get them, and it's hard that we can't afford much maternity leave for me this time, and I'd be lying if I said I didn't worry about unexpected expenditure, but for us we love where we live and it's worth the (hopefully temporary) balancing act. Having said that I'm not sure I'd have gone into this situation by choice - but it is possible to make it work.

@Fudgewhizz I do think I live in the real world. I'm fortunate to have a quite well paid job now but I remember what life was like as a low earner worrying about money and not being able to afford anything over the basics. One of my best friends got married and I couldn't afford to go to her wedding. I worked in bars in the evening and did cleaning jobs to supplement my income.

@Fudgewhizz I wonder how many people who earn that take out £1200 pcm mortgages? That's the point, of course it's worth pointing out the level of income and long term prospects because it's one thing taking out a large mortgage at the start of your career and another taking it out in the knowledge you don't intend/won't be able to earn much more and weigh up the lifestyle you want.

Sadly as others have said I'd be very surprised if they could take out that much on those figures.

Thank you all for you input.

Our salaries will increase in the next few years . I am just stating a new career so will be moving up the ladder each year . When I finish training in a years time my salary will go from £1600 to £2000
Also we are looking to apply for a new job for my partner as he could earn £2000

Basically, we are not at our earning capacity. All going well we should earn more

Ideally I would wait to buy a house however the problem is my daughter starts secondary school soon so we need to move into catchment

It might sound silly but don’t the people who have the best lives and experience take risks ?
The sensible side of me tells me to play safe but the other side says ‘ you’ll have to put in hard work and some stress for a few years and then you are in a great area to raise your children and a lovely house

Before I'd commit I'd want to know I had

1: Six months replaced income for largest income (yours) so £1600 x 6 = £ 9600 though I'd call it 10k to be safe (as you plan to do!). To be extra safe you could consider 9 months income which would put you at about £15k.

2: Smaller car/house repair fund so that car repair and home repairs don't take emergency fund. Personally I like the idea of £2500 for house and £1000 per vehicle. So depending on your situation £ 3500- £ 4500

3: Could 100% cope with no side hustle. That can be extra money for saving/mortgage, but not need it for life/bills/basic family life.

4: Could afford to at least have £200 left over monthly after bills to ensure that I could cover school uniforms, schools, days out, putting a bit aside for budget break etc. There are some very budget friendly hostels that have family rooms.

I did stretch for a nice semi. Part of me thought it was mad at the time, but the nicer semi's are very much in demand and I would never ever be able to afford one now. At the time I didn't realize how stretched I'd feel but we've always been able to manage days out (NT membership is always helpful), asked for experience gifts for bdays and Christmas and local schools are just brilliant. Just be prepared that the first 5 years things may feel very tight.

Depend on how secure your income is. Assuming you're unlikely to lose your jobs and you keep the £10k in saving you have plenty of money. For me £500 for luxuries is a pretty generous budget, £6000 a year for holidays, meals out, Christmas, birthdays etc. That said I'd be terrified of having to pay £1200 a month mortgage and it just depends on what you're used to, how the future looks like realistically and how you feel about it. Go with your gut feeling.

That breakdown really helps ! Thank you :)

Yes, my side income is usually £500-£800 but I am going to assume it's non existent. That usually goes into savings at the moment anyway

From our our actual incomes we would have £500 left and that would be for presents/ hols/kids clubs .

The thought of £1200 is terrifying for me :( I come from a very hard working family who always taught me to play it safe

Thing I will put in place :
10k emergency fund ( maybe more )
Payment protection (incase of redundancy is ill health they cover mortgage for 12 months )
I will live as if I already have a £1200 mortgage now until we buy in May 2021
Keep working to complete my training and get promoted/paid more
Anything else I can do?

Btw the mortgage on the smaller house (but still in catchment ) would be £900

Depending on your jobs as you seem quite confident thd salaries will go up I think i would go for it... actually as if your side hustle isn't there...

You don't want to move twice as the costs are rubbish so...if you could buy smaller and add value-loft/extension ..or buy bigger but buy the cheapest in best location!
At your age would suggest now as the time to take the risk...

If we bought small there wouldn't be any point extending ad the area would have a ceiling price for houses. We would def look to move again in 5 years

Honestly Ozster, for 300/month and having to move again in 5 years (more fees and moving costs etc) I think you may as well stretch. If you were a one income family maybe not, but you aren't.

I would take the risk. We didn't. We bought a too small house we outgrew within 3 years, didn't make any money from and income had hugely increased in that time, selling has been so stressful, I'd try to avoid that as much as possible!

@Ozster

Few things to consider.

Are either jobs ‘at risk’ due to Covid or the down turn? Not right now, but thinking ahead.

What is your side hustle?

Maybe try to live a few months as if you were paying that mortgage. Take the difference between you current mortgage and your new one out as cash, and put it in an envelope and don’t use the money. If you need to dip into it, then that speaks volumes.

@Ozster

Is there no option to buy a wreck and do it up? The most desirable local authority near me often has houses that need a lot of work done to them (through age rather than neglect). That would at least keep your mortgage down.

Also, can you not buy smaller and then extend later? I wouldn't recommend buying a house that you're planning to sell in 5 years. That's too short a time to be confident of making your money back.

OP I would go for it. If worst came to worst, you say you have a good credit rating so could probably get a homeowner loan from the new house after a year, ie if you knew one of you was on the cusp of losing a job etc. Not an ideal situation but would give you time to get a job.

The hassle of moving and expense would tell me to just make the payment on the house you want. Rent these days is easily 850 or more in cities. You’re paying 600 each. Not a huge amount.

until we buy in May 2021

I honestly wouldn’t stress about which option to take it you’re not buying for nearly a year. House prices change a lot, they could go up or down. The stamp duty holiday will have just come to an end in May. No one knows what interest rates or mortgages would be like.

Usually you’d be alright to use previous years as a guide but the economy is not stable right now and you could be facing a totally different situation and different options by next May.

Trying to live on less and seeing whether you can still afford to do the things you like doing is a good idea, but I don’t think you can plan much more than that.

You have all been so so helpful. I feel like a can make a more informed decision based on the advice given. Thank you all x

My side hustle is tutoring , I used to be a Maths teacher but have changed careers.

I thinks like people have said , a good plan is to live like we already have a £1200 mortgage until we start looking to buy in May.

We are not car people ,no finance on either car ,and they are not fancy either . Not do we have any love for designer clothes. Etc

What's important to us is a nice house is a well to do area with good schools for the kids. Clubs for the kids (music , language , sport ) and two mini hols a year (£1500 each usually )

Why wait till May to buy... why not do it 4-5 months earlier to save stamp duty?

What happens if your additional £500 drops to £300? or nothing? What happens if interest rates go up?

I think its risky. What is the term of the mortgage? 25 years?

@Loftyloft as first time buyers they won't have to pay it anyway.

I think it’s too much

We earn £2.5K+ each thats without bonuses and our mortgage is £600 a month.

I would do it.
My mortgage is £1k a month (I'm single) and I'm in a nice semi.
For me my home is just as important as holidays etc.

If interest rates go up massively and/or I lose my income then yes I'm fucked....just like most of the UK, do I'm hoping that won't happen.

If it ia the difference between £900 and £1200, and on the £900 youd be planning to love again anyway, id stretch.

It’s £300 diff

You overpay£1000 a month

Assume overpaying to knock off years off mortgage. I did the same

Do it