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 ?

Honestly I wouldn't be renting out a flat with a 75% mortgage on it. i have been renting a flat with a 60% mortgage and once everything is taking into account I am paying to run the flat (we are now selling). You also need to consider if you want to have kids will you be able to afford the bills on maternity leave and what if the rent isn't paid for a year and then they trash the place? It's a massive possibility.

We considered buying in the over a million range when we were looking. Eventually settled on £150k below our budget as we thought it was more affordable and won't see us watching every penny.

I think you need to sit down and work out every expense and every cost. The 37 year mortgage thing wouldn't bother me but having over half of my mothly budget on a mortgage probably would.

No medical professional in their early 30s would be earning that much. You can only do private practice once training is finished.
I would not be happy with such a huge commitment or being so heavily weighted towards property.
Have you tried a financial planner (rather than an advisor) they can look at your goals for example retire at 55 and help you work out how to make it happen. An advisor is more you need this product to protect your income etc.
Can’t remember which pp said it but absolutely research cost of childcare, private school, commutes, running cost and maintenance of bigger house. Our council tax is £350 per month for example, recent quote for window replacement £30000 as not standard sizes

You're obviously clever people. Write it all down on a spreadsheet and look at your disposable income at the end of it.

And you are right to be wary of getting into renting out property. It's a time/energy/emotion drain which you might get tired of with demanding careers and a family.

Don't equate house size or value to happiness or success, and definitely don't buy a big house to keep up with your perceptions of your friends' lifestyle!

One other point is whilst it's good you've invested in property to date, a childless couple on the income you're talking about should easily be saving 90-100k a year. Be careful you're not being dragged into keeping up with the Joneses. If you really want to build wealth you need to also be careful on spending.

We're in a pretty similar position to you OP although different area of the UK and about 6 years ahead of you.

We held on to our FTB flat from our 20s and rented it out, not actually through choice but more that it wouldn't sell at the time. We wanted to start a family so when turning 30 we moved to a medium-affordability house @£500k. Nice, spacious family house but we compromised on semi-detached, smallish garden and in a cheaper area than the swanky location we had lived in our 20s.

We're now 6 years down the line and the medium house has become extremely affordable so we are able to save a lot of money each year. We're looking ahead to the next move, likely to be detached with a larger garden and £750-1m.

Having spent 6 years at a level we could more comfortably afford we've had a very high quality of life but been able to save, whilst also having 2 children, maternity leave and moving to part time hours.

Feeling financially secure when you have a young family is a massive luxury and is not to be taken lightly. It gives you choices. I would highly recommend taking it in stages moving up the ladder (factoring in the stamp duty being paid at each stage which is a bummer).

My DH is of the mind that you should stretch yourself with your mortgage as interest rates are low, but I'm more risk-averse than him and between us I think we've managed to reach quite a happy spot.

Amazingly cautious words on the whole.

1. Take our time, don't overstretch ourselves.

@BackwardsGoing "Don't equate house size or value to happiness or success", that one really made me think.

Having read all of the comments twice, I've had a look at the running costs of a big house. Council tax would be double, we saw a very nice 3000sq ft Edwardian house that we viewed and now reading the comments I think that might cripple us at this stage.

The house had no double glazing, needed total rewiring and renovating we thought that due to our salaries we could do it. Reading these comments i think we've had a real strong dose of reality.

It would be such a shame to be so overstretched that we couldn't afford even basic luxuries.

@Hamsterfan Um I'm not sure if that was a question? No medical professional in their early 30s would be earning that much. You can only do private practice once training is finished

Your input is greatly appreciated though.

I all the post so far have really enlightened us tbh, taking our time may be the safest way to achieve our goals, even if it takes longer.

Ha, we were in a similar position when we bought a house around 11 years ago albeit with much lower figures and one less property....

When we bought our first house we kept our flat and it became a rental property- my husband was always really keen to keep hold of it and I really wasn’t. I always hated the stress and uncertainty involved with being a landlord and felt that the money tied up in the flab would improve our day to day lives for the better which is more important to me than an investment.

Fast forward to now, it’s been bloody awful over the last couple of years and covid saw us majorly out of pocket, our already flaky remnants didn’t pay rent for months despite still working full time etc. They eventually left and we got the flat on the market ASAP- my husband finally felt the massive stress involved and our life is busy enough without the added stress of that. We do have another property in my home town than we’ll have to start letting out but this somehow seems far less stressful than being a ‘proper’ landlord.

My advice would be, keep it simple and sell the West London flat and buy a house that’ll be less of a financial strain- this is much more important to me with a family than potential investment.

Just to add, we’re using the money from the sale for home improvements and paying a large chunk off our holiday home mortgage so both of those will really improve our day to day lives.

@CollegeDoctor86

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.

The last bit doesn't make sense. Why on earth do you care what friends are doing? They're moving away so you won't see them often, you aren't living with them so why does it matter that they are buying big houses up north?

Will the situation that your husband is wanting make you both happy? It is pointless saddling yourself with a massive mortgage until retirement with the fear of one of you losing your jobs hanging over you. You will want to do fun things while you're both free of health issues that often come with age.

To be honest I read your post and thought you were crazy to be doing this. You're in a really good position with your joint income and two properties already. I'm a millennial too, we earn no where near your income but have just bought a really nice 4 bed house in Berkshire in one of the main commuter areas for London for 400K, and have also just had a baby. We could have afforded a bit more but with upcoming childcare costs, me wanting to cut down on hours and wanting more than one child we didn't want to overstretch and could afford a decent house with that amount. There is absolutely no need for you to spend that much on a house outside of London. 600K would get you an amazing house if you pick the right area and would leave you more comfortable for having children.

It wouldn't be for me. Our household income is 200k and i'm still trying to work out if we want to buy something that would require a 300 mortgage. I'm the main earner but i have no confidence that will continue to be the case for the next 25 years

Is anyone else wondering why two people who earn a combined 270k can't make a simple spreadsheet to answer the questions being asked?

@alienspiderbee thats a good salary what do you both do

I'm a software developer and my partner is an account coordinator, his salary is fairly average, majority is my income. I'd feel more secure with taking a bigger mortgage if it was a more even split.

Our household income is 200k and i'm still trying to work out if we want to buy something that would require a 300 mortgage

Gosh that is a very low multiple! If it would make a difference to your quality of life I definitely would
go for it, but I can understand being cautious, it's still a big loan even if it's manageable.

I'm in the opposite position allanspiderbee. At one point on my first mat leave DH earned literally 10x what I did... I have clawed my way back slightly now but he still earns approx 4x what I do.

We do both have death in service benefits that would pay off the mortgage, a large savings pot that would kick in for unemployment or ill health, so it would just be a divorce that would mean we'd need to sell relatively quickly.

*alien not allan

I'm in a niche area which means it pays well but equally technology changes could make my skills redundant pretty quickly, so signing up to a 20 year mortgage still feels risky on a good salary

OP, people on this forum tend to be risk averse. But the truth is that no one ever made any money without taking a risk and speculating. There are lots of details missing from your post so the level of risk is not clear.
This plan could work as long as the location of all your properties is desirable i.e what happens if you need to sell in a hurry. Would you get full price within weeks or would you need to cut and run. Interest rates have never been lower so mortgages have never been cheaper.
The most important questions is what do you and your husband do for a living. What sectors do you work in?

There’s an amazing house in Ross (Herefordshire) at the moment.

Don’t buy it though it’s currently my dream lottery win home!

What you would want OP is a good run of inflation to take the sting out of the amount. With the current situation, I'm not sure that's going to happen like it did in the 70's, but in 20 years the value of the mortgage will have halved.

I think the question is how safe is your work? How likely are you to get big bonus's? If the first answer is very safe, that can compensate for the lack of bonus's. If you get both, good to go.

I think mortgaging yourself up to your eyeballs IF your jobs are rock solid is fine.

One word of caution, add kids to the mix and I can tell you the costs of childcare is HUGE. To keep working will be costly in itself. The juggle is hard hard work. Don't go down a road that doesn't have an out.

Also on the rental propositon. Make sure you do the maths. The legislative changes do not make this a good proposition. You also have all your assets tied up in the same asset class. I'd be putting money into other investments rather than doubling down on property. If you have good (15% contribution) pensions, then that's not so bad, but don't neglect that diversification. If the earnings are mainly from one of you and you can't that much into a pension, make sure you do other investments for capital that is more flexible in your old age.

@Hiddenmnetter

Is anyone else wondering why two people who earn a combined 270k can't make a simple spreadsheet to answer the questions being asked?

Bit harsh. And not everyone understands how to do spreadsheets? OP is just asking for anyone with similar experiences and for advice. Maybe they have no one IRL to ask? Many people out- earn parents/siblings (I know I did) and as it is considered crass/vulgar to discuss money amongst friends she’s asking an anonymous forum. To be fair, I think everyone has been quite respectful and given quite sage advice in their responses.

We are high earners (although not as high as you) and dumped all our equity and savings into our dream house (London ).
It was a big Reno job and we moved into the property in feb 2020. Our mortgage is big - over 27 years but no where near that size.
Fast forward a few months and Covid happened and my husband's job looked very shaky and subsequently he was made redundant.
I could just about pay the mortgage on my salary but probably couldn't have eaten. He thankfully got another job very quickly but it was bloody scary for a while. We have absolutely no plans for private school for our DCs but we do have two and they cost ALOT. They are in primary now and Childcare costs are still high especially to give you flex to able to earn good salaries. I'm now very focussed on paying down the mortgage as quickly as possible and now we are back earning am overpaying as much as we can. I also expect to be able to remortgage and reduce the loan to value at some point because we have added a lot of value - will continue to over pay at that point as well. Really think about whether it is worth the hassle and heart ache

Childcare is not that expensive. Your parents or his parents could help. You can then work full time

Oh and we have life insurance up to our eye balls to cover the mortgage if anything happened to either of us - that is a big cost to add to mortgage