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 ?

For me it would depend if you are in an industry that won’t sink as a result of the pandemic. May be that is why your husband is willing to take the risk. I know many people that have taken big mortgages in term of properties just before 2008. They are all ok. ( in fact a lot more than before). London and location were the advantages.

As others suggested a financial advisor is a good idea.

If you buy then sell your existing main residence within 3 years you may be able to claim back the additional rate stamp duty

You have great salaries so my question is what are you doing with at the moment? Spending freely, saving or overpaying your mortgage?

Personally whilst you make your mind up what to do I would be overpaying as much as possible without paying fines on your main residence and saving as much as you can.

Having such a long and large mortgage is not for everyone and it sounds like it might be stifling for you. One option is to try and get a chunk of it paid off ASAP but if you aren’t used to reigning in spending it might not be for you.

I would work through the financial situations of having various amounts of mortgage debt, factor in the expenses and loss of earnings if you were to have dc and then find out how much you feel comfortable spending on a mortgage and whether you would be happy to have those restrictions on your spending.

We own several properties and this is how we did it, using equity from one to buy the next etc. Don't worry about the 37 year mortgage as long as it's flexible so you can make over payments in the future. It will be worth hanging into your flat and wait for it to increase in value over the years. We made over 400k and counting from hanging onto our starter home just by it going up in value. We had a 25 year mortgage on our current home but it will be paid off in just over 12 years by making extra payments. We are currently planning a vacation home once CoVid goes away and also maybe another investment property. I think it sounds stressful written down but you guys have a huge income and sounds like you are quite young so your income will only increase. Go for it.

The mortgage provider more not take into account any rent you are receiving so if you don't have tenants, could you afford all the mortgages?

all SeeyouontheothersideofCovid I know is a very good income but in London rich is to be able to afford a house in Holland Park or the richest streets of W8 and Hampstead. House prices there start at 4 million if you are lucky for a family of 4. The stamp duty 😱

I wouldn’t take a 37 year mortgage on. I earn similar. I would consider refinancing but not over that term. I would also very quickly get savings to cover six months mortgage payments “just in case”. Also try to get a flexible mortgage, one that allows over payments and a one off mortgage holiday. As a working payment you need to allow circa £1500 - £1800 per month for child care of a baby (gets cheaper as they get older)

Children themselves are as expensive as you want to make them. However I wouldn’t want to be taking on that amount of debt that is reliant on both of you working full time for the next 37 years. When would you see these children if you have to continue to work full time whilst commuting from Herefordshire or Bedfordshire.
Even working from home you really would be absent for a lot of the day.
Whilst on paper it might look like the maths add up. In practice I think it is assuming a lot.
What if one or both of you lose your job or has an accident.
What happens when the flat is between tenants.
Won’t your outgoings rise if you are outside London. Eg commute costs, petrol etc
Even the practicalities of having children whilst working crazy hours isn’t exactly ideal.

From experience I think of all the things children need, it is your time. They don’t care where you live or how rich you are. They just want parents who are their for them and I don’t see how anyone can be if they are on a treadmill trying to keep servicing an enormous debt.

Eventually the beautiful and grand house in the countryside will begin to look like a gilded cage

@CollegeDoctor86

I would suggest holding off for 12 months but saving really hard in that period, house prices especially in London are likely to fall. Rental of flats isn't currently easy so I don't think you can factor 12 rent payments into the equation - I would suggest you reduce expectations on the rent to 75% in calculating affordability, then assume reducing your income in half to account for maternity leave, nursery fees etc. I don't think the numbers stack up - selling the flat might help but hold tight and watch what happens this year

I think you'd be over stretched and wouldn't have any wiggle room to go part time or if one of you lost your job.

Your income isn't guaranteed forever.

We had a similar choice to make years ago and we choose to live cheaply. I'm so glad we did because my good income has dried up because of covid/ lockdown.

The numbers you have quoted here are staggering to me, so I won't pretend to have any advice about that.

However I see lots of people freaking out about the 37 year mortgage when personally I don't see any problem with that.

We have a 30 year mortgage and I would be happy to make it longer, because the idea is that the monthly amounts are lower but we can overpay up to 10% a year whenever we want.

Right now we are doing a big extension and have nursery fees to pay so we have no spare cash, but in the past overpayments have been the norm and I'm sure they will be again in future.

As long as when when we remortgage, we do the calculations as though we haven't made those overpayments, we will finish paying it off much earlier OR we have the option to pull back our overpayments one time in the duration of the mortgage, in case of emergency. So it's a bit like a savings account that also reduces the cost and length of our overall mortgage if we don't need to use it.

Maybe I've completely misunderstood mortgages or something, but I don't see any downside to having a long mortgage and making overpayments on your terms, rather than doing a short term mortgage with high monthly payments. It fits our life much better because it offers flexibility.

If you've got kids with private school fees, obviously those years are going to be tough, but it sounds like you have great take home pay, so I imagine there will be plenty of periods in your life, or bonuses or whatever, that you could chuck at the mortgage in order to reduce the overall term.

You could always sell one of the other properties if you end up up shit creek at any point. Doesn't really sound that terrifying to me, but I'm used to having a large mortgage relative to income because we went to our limit to buy our perfect house.

That amount of borrowing would terrify me. Absolutely no room for a big change in circumstances.
And kids do cost a fortune...
I would sell the rental flat and go somewhere between what you've got now and the dream house.

Also I wouldn't count on rental income being worthwhile. We don't really make anything on it, although for me I like that those assets are protected.

We had a joint income similar to yours before we had DC.
The cost of DC was actually quite a lot for us - I went PT after our second - so lost 20% of my income.
Childcare was still £2,500 a month, for 4 days a week.
Private school is now £2,500 a month for both - this is definitely taken into account when taking a mortgage - and rising, plus all the after school clubs, uniform etc.
I would definitely say move into a family friendly home before having DC but I would not stretch myself to that extent.

How much equity would you have if you sold both BTL? I don't think becoming a landlord is that attractive at the moment, especially as you will both presumably be higher rate taxpayers.

We also recently considered a move out of London but we soon realised that we would have less to spend on a house there - the commute would have been £6k a year for both of us (compared to £2k now), we would need two cars (we have one car now but rarely use it, it is 10yrs old and not country Lane friendly!), parking at the station, more before and after school child care, council tax is higher outside of London, heating and maintaining a bigger house - we would easily spend an extra £10k a year of post tax income on mundane things. I think unless you move outside of the gravitational field of a London commute the maths just don't add up (unless you settle for a less desirable area and I don't think many ex Londoners do).

We bought our family friendly 3 bed when I was 30 and we had DC 4 years later, our mortgage was 1.5x our joint salary and we massively overpaid when we could. We sold and bought last year and took out a mortgage of 1x our current (lower) joint salary - our 3 bed was getting a bit too cosy with us all at home more. I think we should have stretched a little all those years ago so that we didn't have to move again (and annoyingly, we could have afforded this house back then) but I am glad we didn't have the stress of having a huge mortgage when the DC were small.

Kids do make a big difference to affordability - almost all (all?) lenders include childcare in their calculations. When we took out our mortgage, we were severely restricted on the lenders we could go to because our childcare costs were so high (two kids and only in nursery PT, but the costs were still substantial).

How are your finances likely to act over the next 40 years? Are you in careers where they will grow further? Will they drop drastically when you have kids (i.e. does one of you want to go PT or become a SAHP)?

If my finances were likely to become healthier over time, that could offset the expense of children and mean that your plan is do-able. But if they're going to remain pretty stable, and possibly drop if one of you takes a career break for the kids... then I'd be really worried about being able to afford the monthly payments.

1. I wouldn't be happy with a 37 year mortgage. Few people want to be working in their 60s.
2. You're committing yourselves to working FT with children to continue to service the debt. You might not want this.
3. If one of you lost your job for whatever reason, would the other be able to cover your outgoings (just about)?
4. I do regret not hanging on to one of my earlier properties, with hindsight I could have done and would be in a better 'total asset' position now so I do understand the desire but it has to be balanced against the pressure / worry that brings. My DH has been made redundant twice over his career.
5. Have you trialled living on the amount you're proposing? I would spend a period putting away the required amount each month in an 'untouchable' account to ensure you're comfortable with it.

I’m not risk adverse but probably a bit longer in the tooth than you OP. Firstly you need uk havens really honest conversation about money and earnings. I am fortunate enough to be in a high earning household and have been successful as a very high earner but you cannot predict how motherhood/parenthood may change your point of view about work/life balance. I’m also a landlord. So here is my two penneth:- 1. Interest rates are low now but won’t be for the next 37 years. Ask your DH to show you the sums if interest rates move up 5% points (or more) whilst your income may not. 2. You’ll pay tax at the highest prevailing rate on the entire BTL income (not profit) assuming you don’t set it up as a company. You might find you are just servicing debt. 3. Even with the best planning no BTL ever has zero maintenance costs nor zero periods when the property is not let - you’ll still need to cover council tax, insurances etc. More if the tenant loses their job and you have to try and resolve/evict etc. Can you cover that? 4. I was a ‘this baby won’t change me, I love my job’ sorta gal but realistically it does. Early years are easiest as nurseries open early, stay late etc so you convince yourself even though you miss the baby you have it all figured out...but then they reach school age and there is no 7am drop off and 6pm pick up option (also by now you are pay £’s for childcare and you may start to think why am I paying someone to do something I should be doing and you’ve missed all of the assemblies etc) and this is just for one child. You might want more. And then there is the ‘whose job is more important’ conversations when the child is unwell and one of you has to stay home to look after them, sometimes this can only come from unpaid leave. I can tell you from experience that this always creates conflict. Have you had an honest conversation with your DH about how he’d feel if one of you earned the money and the other stayed home? How do you feel about potentially having to take the foot off the gas on your own career whilst you are on mat leave?

In short, I don’t regret having children for a second but you need to remain flexible about your options for the future for both of you. Living to work on top of having a family is in reality very stressful without an army of support which generally costs money.

It's also worth considering how stressful it can be when you're really stretching yourself. We hadn't appreciated how close to the edge our mortgage would put us, and for the first two years it was very, very tight. Every single payment for everything had to be carefully considered. We couldn't buy anything 'just because we felt like it'. The personal spends we allocated to ourselves went down to £20/month. When you combine that with the stress of two-preschoolers, we could have done with a bit more breathing room!

After 2 years, I moved public- to private-sector and doubled my pay. Everything became a lot easier, and the stress vanished. Worth considering whether you'd be happier with a slightly lower amount to pay every month.

A £3000 mortgage for 37 years sounds utterly insane. Why not get a £500k house since you're leaving London?

We put down 25% and only pay 1.6% interest. A better loan to value can make a huge difference. We also had to pay the additional stamp duty and for us it was worth it in the long term. If we'd had a lower loan to value or a longer mortgage term or been uncomfortable with monthly payment we wouldn't have.

In your position, keep one property and sell the other to invest more in your residential home and pay the stamp. Therefore securing a shorter mortgage and better interest rate.

With your income you can easily save to invest in smaller buy to lets in the future which are less of a risk than having an expensive London property empty, especially at the moment.

I would be considering flexibility.

You are in an amazing position and should have lots of choices. Having children is a game changer and you don't know how you'll feel. Also, your children could have a medical need - one of mine had regular hospital appointments until they were seven and we as parents wouldn't have wanted to miss one of us being there.

Flexibility to drop some income for a while is a real luxury.

*to be having

Do the maths properly. Childcare for however many children you want to have, look at the schools - state / grammar / private - which one do you want them to go to? Wrap around care - even if you are w.f.h. in your country house, for those types of jobs you will still be working long hours. Who will do the school runs? Which one of you will take time off for all the 'school stuff' - sports day, assemblies etc etc. Can you afford all of these payments etc when you are on maternity leave, and there is just one earner, or will you go back to work at 12 weeks old? (no judgement, a lot of my friends did that, to minimise earning loss, but you have to be aware that this is what you have to do, and it's much better to go in with this mindset than to be surprised by it when you're 36w pregnant...).

To earn that sort of money you will be in high stress jobs - do you want to be doing that same job to get that same income in when you are in your 60s? Personally I don't - I plan to start winding down from 50/55 ish, and have sorted my finances accordingly. To take on a 37 year mortgage with those sorts of % rates / deposit would not be top of my list. Bear in mind you may be perfectly healthy now, but high stress jobs bring their own issues, and you may not be able to carry on at the same pace when you get older.

By all means pack up and move to the country, but I don't think you can keep both rentals going. Do your maths properly, childcare, extra house bills, commuting costs and time, the need to run two cars, etc etc. Don't shy away from a longer term mortgage, but take a lower amount and pay off sooner, which gives you the flexibility to reduce payments back to 'normal' should you need to do so. Don't forget pension contributions in all of this - if this is a forever home, plan your pension contributions accordingly, depending on how much country house costs to run. You will not want to leave aged 67, when pensions kick in and mortgage payments have ceased.

We did something very similar, but for exactly the same reasons we weren't able to keep the London house and rent it out.

Best of luck whatever you decide.

In simple terms, just working out how much 3k x 52 weeks x 37 years is .........
I know it's not a simple as that but that's the reality of the cash you're giving the mortgage company over the lifetime isn't it?
Yes, you have a massive house at the end of it but you'll be 70! What's the point?
Live your life!

OP what are your priorities in all this and how are you feeling? I agree with wanting to make a move to a family house prior to have a child, it’s what we did. You’ve said you’re in your early 30s but have you considered the following:

1. Risks associated with pregnancy and getting pregnant increase over 35 - are you happy to put parenthood off for a few more years for the sake of a nice house.
2. Babies themselves aren’t super expensive however everything that comes with them are. We were shelling out over £1,000 a month on childcare at one point. It doesn’t stop when they start school there are hobbies, before and after school club and fees if you go private
3. Ive continued to work full time. It’s killing me. I am the higher earner, we have a mortgage based on our combined incomes but obviously being the higher earner makes the most difference. I would love nothing more than to reduce my hours but we can’t finally manage it at the moment. It means I see my DC an hour a day between nursery pick up and bed time. This is not what I wanted from motherhood

I would sit down with your partner and make a list of your priorities. If it is the house as others have suggested you can obviously make it happen. I would however not bank on your income remaining the same - if you get a mortgaged based on an income of £270k and it drops to say £200k what other cuts will you be able to make to afford it. Please don’t forget your pension and your career if you both decide for you to be a SAHM. I would also not want to tie in to 37 years. Posters are right you or your partner may progress further in your career and you may be able to pay it off. But it’s an assumption and it’s basically spending money you don’t yet have and may never have.

Wishing you luck making your decisions x