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 ?

DH and I earn similar but never would I get a 37 year mortgage. The latest one we've bought we had 40% deposit (from previous sale) and our mortgage is fixed rate at 0.96% for 15 years. So yes its a massive mortgage (~650k) but its short term and low interest. We're both in our 30s.

You don't pay the higher rate if you sell your main residence to buy a new main residence.

Why on earth would you want to stretch yourself so far - both Brexit and the pandemic are creating economic difficulties that will last for years. There are very nice homes for half that price that would be completely suitable and lovely and within the London commuter belt.

I admit I am financially risk averse but people really should be right now.

PPR = Principal primary residence. Ie your home. In your case your current flat.

If you buy a new property to live in, and don’t sell your current flat, you will pay the additional stamp duty on the new property. This will then become your PPR. If you change your minds and decide to sell the flat, you can do so within 3 years and reclaim the 3% additional you paid on your new PPR.

I was told by my accountant when those rule came in that the government wasn’t charging the additional 3% when an individual reached circa 13 properties (can’t remember the exact number) but I couldn’t find reference to this. It was all very unclear at the time as they were new rules so idk if this holds true.

With the amount you’re earning, your future kids won’t be cheap btw. It’ll be schooling, hobbies, electronics, holidays, school excursions, trips, uniform, dental work (braces), private health care and much more besides.

We have just been through this thinking (albeit considerably lower values!)...do we keep the rented property, sell it, buy bigger, buy smaller/lower value? Quite a hard decision to make.

In the end, we agreed that keeping an asset was important to us for the future, so we have compromised on the family home. It's a good area, good schools and transport, but smaller than what we would have really liked. One day, we can (hopefully) extend it. Ultimately, whatever your income, there has to be a cut off point at which your debt becomes too burdensome and stressful. I would find what your husband is proposing burdensome and stressful! Kids can be cheap or expensive, depending on your choices, BUT what you do need is wiggle room in your family budget.

It is always better to live a little more frugally than one could, with a margin allowance that means it's not a disaster if your income goes down.

Your income is very high now but can you be sure it will stay that high for the next 37 years? Either you or DH or both could have a change in health or other circumstances that make your current earnings unachievable.

And retaining all these properties would make you be part of the problem that is causing housing issues for the next generation. The higher tax on extra homes is there to try to discourage this selfish behaviour. Rather than worrying about how to afford it, just don't do it. You don't need to own extra property.

In your position I would:
Live for the next 2 years as if your income was only say £150,000 per year rather than £270,000. Put all the difference into short term cash savings or quick-access investments.

Look into whether it would be feasible to sell or part-sell the other property you own to the relative that is currently renting it from you? Unless you are letting it to them at a fraction of the market rate or they are a terrible credit risk for some reason they can probably get a mortgage with monthly repayments similar to what they are paying you?

If after the 2 years are up you then sell the place you currently live in, you can buy your lovely £900,000 home with a much, much lower mortgage.

Once you have moved, you should be living still well within your means and have plenty left over at the end of the month put all the difference into savings and work out how long it will be before you have about 2 years worth of mortgage saved up. Plan for hopefully starting a family to coincide with reaching that target (obviously you can't predict how long that will take you) and you will have the flex to have a couple of years of much lower income.

Kids will be a complete game-changer but how expensive they are is solely down to your own expectations. People manage a perfectly comfortable lifestyle with an income a fifth of what you get. It's perfectly possible to be incredibly wealthy and feel "poor" if you don't learn to manage your expectations.

Sell the rentals as having tenants is so risky now and could end up costing you loads. You could get a beautiful home for much less than £1m and not have the worry of how Brexit and the pandemic (and children!) May affect your jobs now and in the future. I personally dont think it is best to stretch yourself to the max, even if it could be a good investment in the future. Live comfortably within your means

Also, that back of the envelope calc I did above was only for one child. We paid £2,500 per month for childcare in london and that was 8am to 5:45pm so not the long hours ones. And more of course for private school. Again, if you have to factor in travel time from out of london... it’s an enormous amount of pressure on the working day. It makes 2 full on careers very difficult.

thank you again for all your responses.

I think one of our main fears is that the housing market would continue to run away from us if we didnt move now. People often say houses increased in value more than flats and this was one of the reasons we sort to move.

@KihoBebiluPute
thank you for your insightful response. living frugally and building up savings does make sense.
I do understand your view on owning property both DH and myself are not from ''rich'' families, so we want to build something for our children one day.

I agree about houses being money pits- especially older properties.
A large house means big maintainance costs. if you need new windows, stonework,or extensive roof work- which you will need at some point it will cost £££££.

I would keep only one rental and have a mortgage on a house which only one person needed to work to able to pay. That leaves a lot of wriggle room for a lifestyle change after DC.

DC can be unexpectedly expensive. DS1's health and disabilities meant my career plateaued and eventually I moved to a 4 day week. I still earn a decent amount but that wont increase like when I was in my 20s.

I understand wanting to build something for DC later but that can come later.

Not to be too negative but what if you can't ever have DC? That happened to friends of ours. They stretched themselves massively to buy a forever home for DC and never managed to have any.

Really mixed views, as never having been a landlord before it does scare me the thought of having a nightmare tenant.
Also the risk of taking on a big mortgage, thinking about what has been said here i now think the idea of a 37 year mortgage is nauseating. The mortgage broker said we would finish paying it off just before our 70s. This actually gave me palpitations.

Right now we are extremely comfortable, but i dont want to get lazy , as friends move into big houses up north. We in the London rat race battle hard for houses that are half the size and triple the price.

I think buying a smaller house now, with the potential to extend is the answer now if you don't want to wait.

Currently the maths don't add up. You can't get the money upfront to afford a one million house, unless you sell a rental. It does make sense to keep the rentals and then the income generated from them, you can save for the future extensions/renovations on a cheaper house.

People are moving out of London. Can you afford to pay the mortgage on London flat if you have no tenents?

Have you factored in loss of income/childcare costs into the equation?

I'd keep 1 property. Whichever one is more likely to hold/increase value or sustain rental. Is it the house you live in or the house you already rent out? Keep 1 and sell the other so you have accessible capital.

Could you stay in the flat for another two years and live on 40% of your income, thus saving loads towards the cost of moving to a larger place? Alternatively, if you really want to move now, rent out your current flat and rent a modest property in the new area?
I'd be very wary taking on such a large mortgage right now, as it's quite likely that property prices will go down in the medium term, and you could find yourselves in negative equity and needing to sell for a whole host of reasons.
It seems a good idea to keep hold of your flats if you can- if they aren't already on interest only loans, then convert them, as this will free up a considerable sum to pay towards your new mortgage in theory. Having said that, you need to discuss with a financial advisor or accountant as you're already high tax payers.
I bought a flat in London in the early 80's for £30K ( seemed a LOT of money then, and i struggled for 5 years) and sold it for £740 five years ago, so it can be a very good long term investment with the right property in the right area at the right time.
In the long term, I wouldn't be too worried about a 37 year mortgage term as you can remortgage on different terms in due course, say 5 or ten years time.
Whatever you decide to do, I would advise that you always keep a healthy cushion of readily available savings for a rainy day. That shouldn't be too hard to accumulate on your joint salaries.

Have you got investments other than the cash you are looking at spending?
1mil on your house, 2 more flats. I'm guessing you would be heading towards nearly 2mil in property. If that's part of a balanced portfolio, great. If its 100% of your assets, I'd recomend diversifying. Property doesnt always go up (although London could be different).

I would hang onto the London flat if you can and especially if you want to have children. It could be your children’s first rung on the property ladder in years to come. Sell the second home?

Why would such high earners want to be trapped in a 37 year mortgage? The whole point of being a high earner is to clear mortgage quick! Your plans are crazy. Get a good house, not a mansion; and live within your vast means. Why should a couple earning that much be stretching themselves so thin for 40 years? What happens if one, or both of you, aren’t such high earner in future? Health and economy are never guaranteed

I don’t believe there are financial gains to be had in the same way as Madeinmarch benefitted from. If anything, right now, I though flat prices were falling as people realise they want a little bit of green space to call home.

This is so helpful thank you, I've grabbed DH and pinned him to seat. So he's read all the comments so far.

Over stretching seems attractive in order to buy the bigger home quicker, but yes we don't want to be house rich, cash poor. I still want to enjoy life and not be worrying about interest rates.

We've met with a financial advisor but only to discuss savings and not the wider aspects of our finances which i think now would be a good idea.

Waiting seems to be the compromise, waiting and living frugally.

No wonder some people can't get a home of their own when some people have 3. Ewww.

I think if you are planning to have kids you really need to consider the feasibility of you both continuing to work and commute into central London. It might prove tricky to maintain two full time careers depending on how flexible your employer / industry is. You also need to factor in commuting costs and nursery costs (which in the home counties might be no cheaper than London). It sounds like you will have very limited wriggle room in terms of changes in income so you need to work out carefully the additional costs.

I'm going to be cheeky and ask what is it you both do, to have a joint income of £270k? That seems like unbelievable riches. And if you both have such amazing earning capacity, you will work out a solution for your dilemma!