800,000 Mortgage

[CollegeDoctor86]

In need of some advice on what to do next.

So DH and I have come to logger heads on what to do next. I thought i would consult the all seeing eye of mumsnet. As the advice I've had on here has been ever so helpful in the past.

Dh and I have a joint income of just over £270,000. Currently living in West London in a 2 bed 2 bath flat worth £520,000. No kids at the moment.

DH is fixated on the idea of moving house before we get any dependants as he says it will greatly affect out affordability and we both would love a big family house out side of London. Either Herefordshire or Bedfordshire.

We already own a second home, which we let out to a relative and are hoping to keep the flat we own now with 25% equity in it and rent it out. While hopefully moving to a new home with a rough price range of 800,000 - 1000000, with a 15% deposit.

Now after DH laid these plans out to me, I just cant help but feel that they are, for want of a better phrase, wishful thinking.
I accept we'll have to pay the higher rate of stamp duty as we already own a second home. But am I right in thinking the sums just don't add up.

With a home of roughly 900k and a mortgage of 765k our lender has said we on a 3% mortgage for 37 years would pay 3k a month. This coupled with the 63k we'd have to pay in stamp duty. The total cost of moving would be 135k deposit and 63k stamp duty so 198k.

We have £273,000 equity in the flat we own and could only take out £135,500, to help with the move.

I just feel like we should sell up both properties and just make one move and have one house as it's so much easier.
But he is fixated on assets and feels we can make it work.

My questions are

1. Do kids make much of difference to affordability?
2. Would having a second rental property really be that much of a ''money move'' as he likes to call it?

3 .What would you do ?

I think he’s living in cloud cuckoo land. A pandemic is not the time to invest in rental properties! For a start, eviction rules have changed to make it much harder to evict tenants. People’s jobs are far less secure, house prices are starting to slightly fall and rents are going the same way. I seriously doubt there’ll be a big boom any time soon because the economy won’t go back to normal overnight. What if you have a non-paying tenant or the flat sits empty for months because you can’t find anyone to take it? Have you got extra money aside (once you’ve spent the funds on moving) to cover repairs, landlords insurance etc? I assume you already have this as you’re renting out one flat already but it’s double the costs. You’re unlikely to make much of a profit once you’ve factored everything in. I totally agree with you that its much simpler to have one house and a buffer of savings (not to mention less greedy - I think your husband and I would disagree on the morals and politics of BTL as an investment)

1. Kids can be cheap but you need to think about schooling when you buy. Are you planning on state all the way through, a mix of state, grammar, or private secondary etc.

Private works out roughly 250k per child.

1. Assets are always valuable. Having the money from 2 rentals is useful and long term extra income. Having that off your own mortgage may be easier for you but there's less 'cushion or payback'
2. 800k houses don't come on the market that often in alot of areas so you may be looking for a while. (Or of they do they don't always suit, there isn't the same supply and demand).
3. Remember to factor in commuting costs.
4. With that size of mortgage have critical illness cover.

We have chosen to stick strictly to budget (no 'only 25k over') and go with private school (but not fund university) and then if shit hits the fan the rental can pay for the school. Which would be harder to do if we'd put that money back into own house.
(And we have less than half your disposable income so it can be done on less.)

Middle class problems. We are very lucky but also work our arses off.

Gosh. This isn't going to be helpful but DH and I jointly earn well and tbh the thought of a mortgage that size would give me sleepless nights.

I haven't a clue what you should do, sorry.

I think you have your answer from the above posts - no two people are going to agree. Ultimately you might just have to make a well researched pros and cons list and go with what you are comfortable with.

I think you need a financial advisor not mumsnet, at least you won’t get abuse from them.

No way. What is your take home a month? Approx 10-12k?
How would you get the 70k stamp duty?
37 year mortgage is bloody forwver, I’ve never even heard of it.
3k a month this ‘new house’ mortgage - how much the other mortgages? (You’d have to be able to pay them , between tenants or if they stopped paying)
1500 a month full time childcare for one child, or of course cut your hours and income. And more when it comes to private school. Plus you have to commute from your big outskirts/country home so it’s a huge pressure on your day- you drop child at open and get to work by 9:30am, dh leaves at 4:30 to pick up child by 6? Or a nanny to ease that pressure but make it 2k a month minimum. Train tickets- 500-1k a month? General living- how much? Leftover, not much and that’s assuming you can sustain the dual income working lifestyle.

What would be the repayments on that mortgage + the others you have and can you afford to keep them up if only one of you is working? For example if one loses their job or if one wants to take a step back after having children. In my experience it is rare (but not unknown) for both of a high earning couple to continue working at that level long term post kids. This assumes that you're both high earners. If not, I'd suggest you also think about what happens if the high earner income isn't there - job loss/ illness / relationship breakdown. Are you adequately insured?

DH and I earn in that bracket (and it shocks me to say that!). I wouldn't be comfortable with anything like that amount of debt. Basically one piece of bad luck and everything can come crashing down.

I know nothing - but that sounds like waaaay too much. Especially if you're rich anyways. Cut your cloth to fit your suit.

@Flatpackback - I'm not attacking the OP but agree a financial expert would be better to consult

Yeah I agree with other posters. I am absolutely fixated on our finances, investing for our future and making the sensible move but would not be signing up to a 37 year mortgage. That is such a long time! Think about the age you will be when you pay it off and you will be relying on same income so will be handcuffed to your jobs with no option for early retirement. Also have a look at the money saving expert mortgage repayment calculator and see how much interest you will be paying over the loan lifetime, it will be scary.
At salaries like yours you shouldnt have to worry about money, but signing yourself up to a mortgage like this is forgoing that luxury!
The extra second home stamp duty on a property that expensive would be ok if you didn't have to pay regular stamp duty (or at least I could justify it that way), but I don't think there is time to buy before the deadline now (at least we were told that by estate agents).
This is coming from someone who also has a rental property, lives in London on good salaries and has been thinking about buying a property large enough for more than two people. Could afford your budget, but definitely wouldn't spend it. But then again, I'm not the kind of person who would buy a car on finance either so maybe I am too risk averse or afraid of commitment!

It’s not magic it’s math. Even if you sell both properties your debt to income ratio is a straight up disaster and that’s assuming you’re not carrying any other debt load like student loans. Credit cards, car loans etc.

Yes rental income is nice but as you know the laws for landlords have always been unfavourable but I think it was 2 years ago that nee law went in that raised the tax rate not to mention we are midst pandemic and I think unemployment is 4% or there about s and I’ll eat my hat if it doesn’t go above 6% by April.

Your current deposit on a house of £800,000 is minuscule and the loan to value is really bad.

Having a family is a wonderful idea in a house you can afford without stretching. Babies: children are expensive and no child will be born caring if it resides in an £800,000 super home or a 3 bed flat. They only care about being showered with love by mum and dad and it seems like you have that in spades.

@Nomaigai although single I’m in the very high earner group with you. I started in 1990 with a studio flat. Even though on my wages and savings I could live in a much grander house with a mortgage that would be freak out time for me. I’ve been in this house in London z2 for 16 years. It’s a plain mid terrace but I did Reno and upgrade some things. I paid £417,000 of which I had a 60 % deposit. My house is now valued at between £1.2-£1.3M. No one is more shocked than me. The reason? Not interior design but dumb luck in that a crossrail station is being built (and built and built and god I hope they finish before I pop my clogs) less than 200 yards from my front door. Crossrail was not even planned when I bought it.

I agree with pp to seek professional financial advice however... I always think it's a good idea to keep your London property. Yes you can make a small income with rent however the pay off is later when you either could (a) sell at retirement to pay off mortgages/ travel. Or (b) offer your kids some swing space to live in whilst they start out then sell when they wish to have their first property and split the asset value fairly amongst them and yourselves.

Where would you get the stamp duty from for this move? The question isn't even affordability - it's that. You need to find stamp duty and moving costs.

Having said that, I wish I'd managed to hold onto one of my first flats - me and my then dh were also very high earners, but didn't manage it.

And yes I think that mortgage lenders do factor in children when working out affordability. But so should you - they are expensive. You might want to give up work, or be part time. And also factor in divorce or splitting up.

I think you would have to sell the first property to do this. But I would say I agree with your dh, if you can hold onto the London property do - it's only going to be an appreciating asset and you may want to keep a london bolt hole for when you are retired or whatever.

@CollegeDoctor86

I accept we'll have to pay the higher rate of stamp duty as we already own a second home.

Is the flat your currently living in yours?

If so, you’ve already paid the second home stamp duty so won’t have to pay it again

Me and my other half are in a similar position where I want to upgrade to a nice big house and he wants to buy the nice big house AND keep the starter home we're in now. We've got a 7 year plan in place that involves throwing everything we have at our current mortgage so that if we are able to keep property 1, the mortgage will be so low that we aren't reliant on the rental income from it. This will coincide with DS1 reaching year 6 and so would be a sensible time to move.

At your income, which is considerable, you must be saving a huge amount each year. Even delaying these plans by 2 years will put you in a much better position.

Are you really desperate to leave London before you conceive? I'm bringing up my babies here and found it fantastic, everything's on your doorstep, millions and parks and places to take the baby, all my friends and family (I grew up here). Living in the suburbs would be lovely for my kids when they're older but right now, London is great for me.

Ouch. If it helps, friends of mine are in a similar situation - probably be earn about the same, kept one expensive house in London and bought another with a similar mortgage and repayments. She’s now ill and can’t afford to give up or downgrade work Sonia miserable

Having children is a complete game changer in terms of costs, and particularly expensive in London.
Either you have family who can provide dedicated full time childcare (like one parent who does not work, or grandparents willing to nanny for 10+ hours a day) or you have to pay nursery fees or hire a nanny / childminder. In West London that is going to be a significant share of your income, even if you’re on 270k p.a.

• so is miserable

With the assets you have, I'd be meeting with a financial advisor. Ours manages our pensions and ISAs and then does an annual review. He always gives it to me straight when I have weird and wonderful ideas about investments (like a pension for my newborn )

You will not pay the additional stamp duty on a PPR, only if you don’t sell the flat you currently live in. As for affordability. Can you afford to pay the interest on the mortgage and service your current flat if a prospective tenant doesn’t pay? This should include if the tenant trashes the place etc. I had a new tenant move in recently. Totally revamped 18 months prior - kitchen, bathroom, flooring etc so it’s immaculate. No money in December. January now overdue. As the current situation stands, I can’t get them out for 6 months after two months is outstanding so he will be rent free for 8 months minimum. Idk yet if he has been hospitalised or happily sailing on the current situation. I will pursue this arsehole to his death to get all outstanding money if it is the latter. He obviously could well afford the place as the agent had 3 applicants and he was supposedly the best.

To add 25% deposit in the current economic climate really isn’t very much. House sales have stagnated in my neck of the woods. I have read prices for flats are falling in london.

My health was trashed from having dd and I was pretty much bedridden from when she was 3. Unlikely to happen but it could. I am too ill to work.

Wow thank you so much for taking the time to reply. I understand the concern on here with the level of debt.

I do however think that unfortunately for millennials like DH and I ( both early 30s) we haven't benefited from 'reasonable' house prices, so the chance to slowly build equity and benefit from booming house prices has'nt been there like those who bought in the 90s,00 and even 10s. So big mortgages are becoming more common in order to keep up with the house prices.

I agree with cutting our coat according to our length and i think some of the points regarding us being ''high'' earners for the foreseeable future are valid as things may change.

@OverTheRainbow88
I'm pretty sure any time you buy another property you have to pay the higher rate stamp duty. It isnt just the once? Or am i worng

I wouldn’t want to pay more than 20% of income on mortgage.

Remember, houses are money pits unless your buying something all recently fully renovated.
Our house is being slowly renovated, it looks fine to the eye. But heating system ancient, all electrics redone, old water pipes leak so replaced. New roof within the next few years. We pay more per year atm on renovations than bills. But that’s why the house was cheaper to start with

@Mummyoflittledragon

what is a PPR?

Kids can be cheap, but they wont be for people like you (I say that in honesty not judgement). They’ll be a huge expense especially during the early days (childcare, nanny), through school (holidays, school fees, expensive hobbies to keep up with friends also living in £1m houses) and later days (uni/cars/internships abroad).

We don’t earn your wages but equally don’t live in London. For our area we were comparable to you pre kids. We moved to the big country house before DS. Granted covid played a big part but we found ourselves unable to source childcare mainly due to rural setting. DH’s hours allow no flexibility so all childcare fell to me. I had to drop to PT losing half my income (luckily DH is higher earner).

Having grown up pretty poor myself I had lots of ideal about how ‘cheap’ kids could be but I look at our neighbours and the kids our kids will be growing up with and it just slaps me in the face that every level of society kinda sets it’s own expectations. Hobbies around here are things like sailing and horse riding. If we don’t support DC to have at least a similar lifestyle to the kids around them they’ll feel they missed out. Doesn’t seem very fair.