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 ?

We are in a similar-ish position to you OP.
Recently bought outside of London but decided to keep our 2bed flat. Mortgage on it is pretty small thanks to years of overpaying with bonuses etc. We could have sold and bought a bigger place (plus less stamp duty) but we wanted a base in London for work and good long term investment. One day we want our children to be able to use it too. If you can, I'd hold onto it. But that is just my view.

Haven’t RTFT but children do affect a mortgage calculation potentially quite significantly as they ask about things like childcare abs school fees. I think as some may have already suggested, it depends how secure your jobs are whether now is the time to stretch yourselves a little.
My observations would be if you need a 37 year mortgage to make it affordable you need to reduce your budget as guaranteed you will hate the idea of still having this hanging over your head in your late 60s/early 70s, also your deposit sounds low for a property of this value, very little contingency in the case if unexpected circumstances including drop in value if there is a major recession etc.
It depends what’s important- if you really want the dream house now sell the rental, increase your deposit, and then it’s more realistic, if not, keep the rental, and hold off for now, build up your savings which should be doable on your income, and go again.

Gosh thats a good salary for early 30s what do you both do. What was your degrees in?

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

OP a 37 year mortgage is absolute madness. I know you said you are early 30s but it is folly in the extreme to think that for the next 37 years you will be both be in good physical and mental health, and employed, and on salaries similar to what you are on now. What happens if one of you want to take a few years off when your children are small? You’ll both be enslaved to servicing the mortgage.

Re-do your borrowing/ mortgage calculations based on 20 or 25 year (tops) term. And leave yourself some wriggle room that DOESNT rely on the flats baling you out. Yes “London property always increases in value” but if the last year has taught us anything it’s to expect the impossible.

As another poster has commented you will have all your chips on property, geared to the hilt, and that’s a very dangerous pack of cards indeed.

Something you might want to bear in mind is the running costs of a large house. We've just downsized out of one, and the running costs were astronomical. Our heating bill alone was over 7k per year. Insurance 3.5K p.a., council tax 3.5k, cleaners (you can't keep on top of a house like that without help), repairs (period property = repairs and much upkeep).

And if you do decide to have kids, they cost a bloody fortune. Your career may also take a huge hit.

Seriously. If you're going to take on a big house, do yourselves a favour and keep the finances simple.

If you've been saving and socking money away elsewhere, then three properties isn't crazy. But if property i your main asset I'd be very reluctant to have all your eggs in this one basket. So keep one property as ar rental and sell the other one. Reduce the size of your mortgage and, if possible, aim to pay it iff much quicker. With a larger deposit you're also going to get a much more attractive interest rate at this point which means if you can afford £3000 a month you could be paying off the mortgage a LOT quicker and buying yourself some flexibility should things change down the line.

If you still ALSO want to invest in property in addition to your rental property, invest via a property fund. You can put aside a much smaller amount of money each month towards this but still be benefiting from property price increases, if applicable.

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

This ‘gearing’ strategy is great.....as long as property prices keep going up. And yes they have done over the long term. But just because they always have, doesn’t mean they always will.

What happens in the case of mass unemployment, tenants stop paying rent so you can’t service your (multiple) mortgages, and you can’t sell any of your rentals flats because they are now in negative equity? One might say that is an incredibly unlikely scenario, but it could happen (the chances have certainly gone up tenfold!) You could potentially lose the lot. To me the risks outweigh the potential upside.

Im used to living with risks - my DH has been a serial entrepreneur and we’ve had some pretty hairy moments over the years when it came to our finances as he’s tried to get businesses off the ground. But we’ve never messed around with the security of what is our home.

Just a few comments, some already made but to reiterate:

• big houses cost a lot to run and maintain. Possibly a lot more than you imagine.
• it is good to get a benchmark by looking at what the mortgage repayments would be with a 25 year term. Starting with 37 years sounds a bit mad to me - yes you can refinance, overpay etc, but better to have a little potential flex the other way.
• I am not risk averse, and have a big mortgage, but I don’t have dc. I feel it’s one thing gambling a little bit with my own life situation, but if I had dc I’d be aiming for more security I think.
• renting out a flat does take work - maybe not loads, but some. Add children, commuting, and work/maintenance on the new big house and it adds a lot more stress to your life. If you are going to be taking on a lot of the life admin you need to think about how you will manage it.
• agree with pp that stretching oneself can be hard work, budgeting every penny is hard, and in the circles you’re probably in will feel like deprivation and possibly impact you socially to some extent.

Unless you have other assets, or a professional interest in property (eg estate agent or architect) being so invested in property is a mistake. You need a much wider asset portfolio to withstand systemic shocks.

BTL is not merely an investment strategy - it involves actual customers and staffing and significant legal responsibility. It’s increasingly complex and increasingly a career in its own right. Concentrate on your own careers.

There are very few jobs with meaningful security these days. You need to base your calculations on the lower of the two incomes.

The extended term of a mortgage is nothing to be afraid of, providing it allows you to make limitless overpayments, and you do.

You have no idea how expensive kids can be yet, especially if you’re a parent with ‘big house’ aspirations already.

We have chosen to stick strictly to budget (no 'only 25k over') and go with private school (but not fund university)

You will have to fund your child's university living costs on your salary.

You have no idea how expensive kids can be yet, especially if you’re a parent with ‘big house’ aspirations already

So much this!!

The mortgage broker is a bloodsucker. I’d get a new one NOW. When do you hope to retire op? No one who earns well plans to continue paying mortgages in their retirement unless they are so wealthy they don’t care what the financial arrangements are really, their accountants set it up and some other investment /cash flow pays it.
In addition to all the usual you may not be able to manage the two careers, you may not want to work full time with a child, your child/ren may have a health issue etc that means you need to spend more time at home and cannot continue your current work trajectory, this is another layer of madness. Think about your and your dhs current role, and the next role or two up in your careers and think about who does them and how demanding they are. Are there many 60, 65 year olds around? At some point most people either cease being willing to push for c suite/ bigger c suite/ etc, or are not going to get there and reach their peak. These high paying jobs are quite demanding, and frequently quite ageist. It will be harder to get hired or promoted at 60 for most people. It would be insane to expect you can keep climbing the ladder or keep weathering crises into your late 60s.

And the people saying a 30 year mortgage is fine because you pay it faster- I have one of those myself, but we are paying more than 1k extra a month. This is 37 years and it’s not clear they will be able to pay it faster.

You can always sell if your long term mortgage is too long term. It’s a (~rough) loan repayment schedule not a prison sentence .

If you have combined earnings of £270k pa, why do you have less than 50% equity in your West London £500k flat?

Why not just reduce the budget for the country house? Have a look and see what’s around in the £450-£650 bracket; you might be surprised.

@GinandGingerBeer

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!

Isn't the £3k monthly not weekly?

@JetsetJetlaggedJaded

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.

The issue isn't the 37 year mortgage, but the fact that (I've been assuming) the 37 year mortgage is the only way to make it affordable. If you can afford on a 20 year mortgage but it would be tight and so take on a 30 year mortgage that allows you to overpay (and you actually do over pay!) that's different to buying a property you can only afford on a 37 year mortgage.

You won’t be able to obtain a BTL mortgage on the second property lived in by a family member - it’s just not allowed by lenders because of the legal implications. Are you happy to boot them out? Or ideally, sell to them?

Do you have family money? There’s nothing wrong with taking big financial risks (DH and I have both done it) but ultimately you need some sort of safety net. Things can and do go very wrong.

The reason childcare costs are taken into account when calculating affordability is because it is so expensive. If you have to travel or work shifts you’ll need a live in nanny capable of proxy parenting. A nanny is £40k pa plus food, travel and accommodation.

1. Do kids make much of difference to affordability? yes
2. Would having a second rental property really be that much of a ''money move'' as he likes to call it? we were both keen but looked into this and the tax breaks and yield made it annoyingly a pretty poor choice tbh

3 .What would you do ? we are a lower joint income at about £200-220k and our situation is spookily similar. Ultimately we sold our previous place we now have 45% ltv on a large house in Hertfordshire/London borders. Without overpayment we will will finish paying in early 60s which makes me a bit (not envy). Tax wise it was more efficient to have a decent primary residence. The reason we did took the leap and stretched is we didn't want to piss about with stamp duty and are now in a home we can retire in (if we want). Thinking about kids also made me realise I may well not want to keep earning 6 figures and I don't need a mansion but I do need 3 holidays a year . I am also clear in my own mind I want to retire at 60. Our mortgage is £2300 but once you tack on utilities, heating and food/our monthly living costs ex "luxury" our basic outgoings are £3700 and we are good savers. Houses cost a lot more - even builders charge more. This base outgoing is a serious chunk once we factor in kids. We bought a 5 bed for a million and could have stretched to 1.3m property but are really really pleased we didn't.

We saw FAs too but didn't really get what we needed from ANY of the financial advisors they are all obsessed with fucking private pensions. If you get a decent one please share their details!

You can’t say how expensive kids are things crop up.
What would happen if your rented properties sat empty could you afford to keep them?
Also are your jobs secure? If you plan to have children is your maternity package good etc lots to think about and I’m no expert but it can’t just be up to DH to decide if your paying too if you aren’t sure say so!

Is your username a clue to your profession, OP? If so I think the advice may be rather different.

Worlds of difference between being an NHS consultant or GP Principal or a highly paid but easily expendable cog in a City quant machine.

We bought the big family home a number of years ago and now I am desperate to pay it off so we can retire retire relatively early (early 60's). The thought of working until I'm 70 would be horrific. One benefit of having invested in our home is that when we do retire we'll sell it and move out of commuter land. This will free up £500 - £700k to add to our pension pot meaning that our retirement will be very comfortable. And in the intervening years we've been living in our beautiful savings plan, so have enjoyed that benefit.

You would have other properties you could sell (don't forget capital gains tax) to pay lump sums off your mortgage and bring it down that way, so maybe it makes sense while you're childless. You can take out a 37 year mortgage but pay it off in 28 or 30 years so long as you watch out for early redemption penalties. Just make sure you have a plan that gives you options that a financial advisor says make sense.

Finally I've just signed up to a 5 year fixed rate from the Halifax at 1.45% so do shop around for your mortgage. It's interest only, so I'll overpay so that we're chipping away at the capital in line with our target payoff date.

Not really the point, but do you mean Hertfordshire or Herefordshire? Commuting from Herefordshire wouldn't be ideal but you could get a lot of house for £750,000.

I'm really glad to read your last update as honestly the idea of paying a colossal mortgage into your 70s made me feel sick, and it's not even my money! Now hopefully you'd have pay rises in that time so you could overpay and pay it off sooner, but equally one of you may need time off work to care for a child, you or your child may be sick and you may be unable to work for a prolonged period, your employer may fold or be taken over and unexpected redundancies can happen - can I just say ALL of these happened to us in the 5 years after having our first baby, it was an absolute shambles and our income dropped 80% at one point!

We are also millennials, and didn't have family money, but we went a very different route, we've tried to play it safe and play as little interest as possible, so go in with a good deposit, low interest rate, max 2.5 LTV, overpay like mad. Paid off our first house in 4 years, and the second one in another 5. Now mid 30s, mortgage free, lots of money to enjoy life, pay for private school when the time comes, travel, invest, whatever we choose, but most importantly we have the safety of knowing even if everything goes belly up we have really really low commitments each month to keep on top of.