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 ?

A good nanny is easily £2500-3000 a month

Hi OP, I know this wasn't the question, but I'm originally from Hereford. I'll be honest, the schools (including private ones) aren't great. People are insular, it's very Brexit. You can't go anywhere because there are no motorways, and it's not near anywhere.

The countryside is beautiful, but that's about it.

What do you folks all do where you earn this much money?

@christmasfairy are you suggesting they don't pay for childcare even on these salaries...?

I haven't rtft but i can tell you what we did. Got a 500k massive renovation project, kept mortgage down as rates will go up eventually. Then renovated the house to make it worth 800k by spending 100k. Its hard work doing it while living in it and working but very doable.

@sst1234
Yes i have definitely got the impression risk is strongly discouraged from the answers. I can only think, that this is for good reason. I know that all the comments are drawn from such a vast array of life experiences.

@Perfect28

I work in the medical field, DH in the the corporate world. I don't think anyone, anywhere can guarantee their income for the rest of their life, unless uber rich. Even though i don't get bonus' my income at least doesn't tend to fluctuate that much. However i am under no illusion, that it will mean plain sailing as life is a winding road and you can never bet on having a smooth journey when it comes to earnings.

Why go for a 37 year mortgage? I would expect at those salaries you could afford a 25 year mortgage - higher repayments but all just equity! With the added benefit of being able to go to a lower LTV and better rate sooner.

The house price situation at the moment is ridiculous though. A couple with your income should be able to afford a glittering palace (even in London! Okay maybe palace is an exaggeration, but you get the idea) and would have been able to 20 years ago. Now £1m buys you a so so terraced house within a not so glamorous part of the city. Hence the only way to go is massive mortgage to have the lifestyle that would have been achievable much more easily before

you can never bet on having a smooth journey when it comes to earnings well you're wanting to take an 800,000 bet. You really need to assess how maintainable your earnings are. What is your trajectory?

Mine was £1.3m mortgage at one stage (and with five children).
What risk people want to take is up to them. Definitely buy before you breed as lenders are less keen when you have children. I would probably sell the flat you let out if you can in the current market. If not keep it.

I have always known I can earn more money and can work much harder than most people so was never too worried about big debts on the house. The last property anyone bought in this family was over £1m although my son completes on a first house tomorrow at £350k. Lots of high earners put a nice home as top of their list. We had a lot of children and high childcare bills but other than that not high spenders so wanting a nice house plus childcare and once children were school age school fees was fine by us.

I would not take a 37 year loan however. In 1997 we took out at 10 year not 25 one as I wanted to pay it back quickly.

Blimey. My DH's takehome is just over £270k a year without his bonus, and there's no way we'd even consider a mortgage that big 😧

It’s knowing your earning power and being confident of it. I think that’s easier in some roles than others.

Going to be controversial here and agree with DH. IF you have the cash for the deposit + stamp duty and lender happy from an affordability standpoint. You mention you are young - so also assuming salaries projected to increase?
I would take the mortgage on the longer term and just commit to make overpayments on this (as and when you have the means to). This is what we have done with our 35yr mortgage.

1. Yes - we had one in childcare and household income a little higher than yours and it affected affordability calculations (2k pcm nursery fees), if we had two FT nursery, pretty sure it would have been a no deal.
2. If you can do it, I would. If the proverbial hits the fan you could always sell up the rental vs your family home. Or, if you separate there is somewhere for him to go
3. On husbands page.

@Shmithecat2

Blimey. My DH's takehome is just over £270k a year without his bonus, and there's no way we'd even consider a mortgage that big 😧

How have you afforded a decent house?

Large deposit, familial money or property? Or a cheap area?

yes, I think it is based on the risk you are willing to take. I think it's the way you think about it though. There is a big difference between a calculated risk and a blind risk. My earnings will increase slowly from what they are now but not hugely, the only deciding point will be how long I feel like working for. I would hate to be house rich, cash poor.

@Xenia
Mine was £1.3m mortgage at one stage (and with five children).

I have always known I can earn more money and can work much harder than most people so was never too worried about big debts on the house

What do you do to be able to allow for such a huge mortgage?

occupation wise?

I had a similarly sized and length mortgage in my mid 30’s.

We stretched ourselves massively but also I had a reasonable idea that our position would change.

I’d agree with your DHs position if you think you can get yourself in a better LTV bracket in the next couple of years.

I’m a bit of a risk taker though and my next mortgage was even more heart stopping!

Paid off though

What do you do to be able to allow for such a huge mortgage?

I think Xenia has her own solicitors firm amongst other things- I'm sure she'll be able to tell you more herself.

Op, whilst l agree with the principal that to create wealth you need to take risks, the risks associated with BTL are huge, if you have a 75+loan to value.
This is due to the tax situation, you cannot offset your full mortgage interest against your rental income any more, so you could easily be in a lossmaking situation, ie you are paying higher rate tax on your rent income ,minus allowed expenses, THEN you have to pay the BTL mortgage.
Even if this still adds up can you cover 6 months if a tenant defaults on the rent?
It can take this long to evict with the current backlog.
At the very least make all these calculations with care before you decide to do this.
So, (without knowing your entire finances) IMO you would do better to sell the least good investment and put the proceeds into the forever house. I agree it is better to buy this before dcs as you are in a stronger position.
Then there would be less risk, but you still have one investment which with good planning you have a cushion for problems which can occur.

Also keeping in mind that you may have childcare costs in the future, or one of you may lose a job.
You don't want to be in a future position with 2 dcs, 2 sets of nursery fees, a tenant not paying rent and a massive mortgage.

Yes, I have my own law firm although only I am in it. I set up form home in 1994 and we moved to this currently and hopefully last house in 1997 with a £500k mortgage.

A 37 year mortgage is ridiculous- all fur coat and no knickers.
Think logically about this and the cost over time

Buy what you can afford now on a maximum 25 years (ours was 17 for example on a £600k mortgage- now down to about £350k and paying off £4k a month). Then maybe later if you still want a larger house you can size up.

Our gas/electric is £400 a month (6 bed Edwardian)
Big houses cost money , council tax, water rates, repair bills

Kids are not expensive at the beginning 😁 but then they become teens and the mini adults are expensive. You'll also want to save for their future. That long a mortgage will drain you. You don't want to still paying off a mortgage at the most expensive period of living.

I think you’ve had a lot of posts from people in quite a different income bracket. We’re not quite in your league but took out a big mortgage over 34 years on the assumption we’d make overpayments. I have no intention of it running that long but wanted it over longer to have slightly less risk. It is important though that you try and build up savings/investments so you have money there for mortgage payments if you need them. I’d also make sure you have stellar life insurance. We took out a sum that would allow us to pay for private schooling, a nanny and to pay off the mortgage if one of us died. I’d also only do it if you’re paying good pension contributions.

The things that have made the financial difference for us re children is:

• dropping to part-time
• childcare costs (you need to factor in school age costs too for wrap-around care) *house improvements and maintenance - we did bugger all when we had our flat but we’ve spent a fair bit on dull structural work and we have a gardener.
• kids activities and experiences - chances are you’re peers will be all doing them so you’ll spend money on them
• private schooling- this is the biggest cost if you want to do it. Even if you just wanted secondary, you’d need to start saving from early on
• family car- you might not drive much in London but you would most likely need a car.
• holidays - costs for 4 are unsurprisingly much more.
• food shops - the children eat a lot of expensive things like berries, mango, salmon. They eat very well but we spend a lot more than we did when it was just the two of us.

We are incredibly fortunate and a lot of our spending is probably unnecessary but has become fixed. You do need to factor ongoing costs of children into your plans to make sure you’re not overly stretched and can have choices in terms of how you want to live as a family.

we saw a very nice 3000sq ft Edwardian house

Where did you see this OP? On a budget of £900k I can’t imagine what area you’d have to be looking in for this?? Bedfordshire is significantly cheaper than Hertfordshire so I’m guessing it’s in Beds. I would point out that house prices rise faster in Hertfordshire so you’d be better long term buying there but for your budget you probably won’t get the ‘big family house’ you’re after. May be better off selling one or both of your existing properties and going all in in Hertfordshire. Realistically you’ll want to be spending £1.1-1.3m I think for an average family home.

Sorry also to say 37 year mortgage would terrify me. Similar age and ours is 21 years but we overpay to reduce