Can we afford this house? What would you do?

[Enessie]

A bit of background: me and dh are in our 40s. We have 2 primary school aged dc in state school. Our joint income is 155k so roughly £8600 post tax per month. Current mortgage is small.
Our current house is fine, and can be easily extrnded to create another room or two. During the lock down we suddenly need to create 2 home offices in the house and this nudged us to move to a bigger house, plus we got caught up in this house craze and FOMO as we witness house price increases week by week.
So, long story short, we put our house on the market and sold quickly. However the hunt for our next house hasn't gone so smoothly. When we started looking, we had in mind the budget of of 500-600k, but this has been pushed up many notches after we lost a few bidding wars. Houses that fit our requirements don't come up often in the small area we are considering.
Sorry for being long winded. So after many months of searching, we are committed to buy one at 750k, it is much bigger than what we set out to buy but is a real beauty. It still needs about 150k of renovation
So my questions is:
If we buy this house, the estimated house related bill (mortgage payment + council tax + utilities + home insurance) will be around £2200. Both me and dh only started working in early 30s so our pension is not an encouraging sight. We started in recent years to put everything over £50k into sipp. So effectively our salaries in only £50k each, i.e. around £6300 in total per month. So the house bill is over 1/3 of our income. Do you think that is manageable or a bit tight?
Our other household expenses amount to about £2+k, so technically, if nothing goes wrong, we should have about £2k spare each month. As mentioned, the house needs renovation, we only have £40k for renovation now so the other £100+k will need to be saved over the years to carry out the work in stages. Meaning that we won't be able to overpay the mortgage for at least the first 5 years. The renovation costs could also rise as material and labour cost rise.
Our mortgage term is 30 years. Meaning that if we don't overpay, this will take us into 70s. My question is, are we too old to take on such a big debt? 30 years is a long time and anything can happen. We have never been our of work but hey who can guarantee the same for the future.
If we don't buy this house, we can be pretty much mortgage free in 5 years time. Dh has to go back to office soon and now only need 1 wfh day. So, we could play it safe and stay and extend. However, my house is a bog standard 1930s house and after the extension would have reached the ceiling value of the street. The new house is oozing with features and characters. I am also thinking if it makes more financial return if we buy the big house. When we are old and want to downsize, the big house would have appreciated more in value.
Sorry for being so long winded and rambling away. What would you do? Bite the bullet and buy the new house, saddled with a 30 years mortgage but gained a dream home, or stay and be mortgage free in 5 years?

Here is a biscuit.

Would be a really shitty thing to do to your buyers

Seems like too much of a financial burden to me. How secure are your jobs? A mortgage in your 70s, sounds nuts. And don’t bank in the value of your house only rising. Property is like any other investment- past performance is not a guide to future performance, and all that jazz.

@Blondie1984

Would be a really shitty thing to do to your buyers

What on earth is this in reference to? Did you post on the wrong thread?

I would prefer to be mortgage free or keep looking for something less expensive.

However, 2k money to spend on whatever a month is a huge amount.

The dc and I live off a lot less than your spare 2k every month in total. So it is hard to imagine you have that much left over.

Surely 2k a month is more than enough for spending and emergencies and put some towards the home improvement fund.

Most people I know have to save up for each part of modernising their property. It takes time.

I do think you will have to weigh up whether you want to have a mortgage in your early 70's. Or choose something cheaper that you can pay off sooner but still have room financially to downsize at a later date.

New house sounds great, Go for it

I'd buy the big house now. Pay less into SIPPs as you can downsize and release equity when you retire at 70? I have set aside a lot for my retirement but don't forget life is about living now.

You won't necessarily have a mortgage in your 70s. Realistically you're unlikely to want to stay in a very big house once it's just the two of you again.

I dunno, this obsession with big houses and financial gain, it's so shallow.

Be glad you have good health, an income and a comfortable home. Get out and live I say. But I doubt you'll do that 😂

We did it 2 years ago and are loving it. Yes outgoings are high, big houses are expensive, but it’s nice to live in. I think you can afford it but you will need to reduce your pension input, and as pp say a bigger house means you might not need to put so much into pension anyway.

I would consider taking additional mortgage if you can in order to get ahead on the renovation. Most of our renovation work needed to happen at once because the rewiring and structural work we did made the house basically unliveable. It took 12 months, after which time we could start overpaying the mortgage again.

The 'third of your income on the mortgage' rule of thumb is less applicable if your income is very high or very low, so don't focus on that.

If you earn a lot, even if you don't have 2/3 left, you still have a lot of money left.

If you don't earn much, even if you have a lot more than 2/3 left it might not be enough for food, bills etc.

But check yor budget carefully. Whether it works for you depends on expectations re big ticket items like cars, holidays etc. If you spend a lot on these items, you might start to feel the pinch if you're also paying a big mortgage and renovations.

Have you been approved for the new larger mortgage? That includes quite a detailed analysis of your finances and is quite conservative so if you pass that, you should be able to afford the new mortgage.

Plus you'll be in a good position to downsize when you're near retirement age. But do you want to go through the upheaval of a major renovation?

Lots to think about.

@50ShadesOfCatholic

You won't necessarily have a mortgage in your 70s. Realistically you're unlikely to want to stay in a very big house once it's just the two of you again.

I dunno, this obsession with big houses and financial gain, it's so shallow.

Be glad you have good health, an income and a comfortable home. Get out and live I say. But I doubt you'll do that 😂

I agree it is shallow but we need to think of old age and retirement fund, downsizing is the one of the very few ways to release fund without getting taxed.

I did th]nk maybe we could buy and live there till 60, then downsize, without necessarily clearing the mortgage. Dh wondering if it is too much hassle to go through all that renovation for all not forever home

@Autumnally

We did it 2 years ago and are loving it. Yes outgoings are high, big houses are expensive, but it’s nice to live in. I think you can afford it but you will need to reduce your pension input, and as pp say a bigger house means you might not need to put so much into pension anyway.

I would consider taking additional mortgage if you can in order to get ahead on the renovation. Most of our renovation work needed to happen at once because the rewiring and structural work we did made the house basically unliveable. It took 12 months, after which time we could start overpaying the mortgage again.

Are you of similar financial situation? Will your mortgage take you to 70s if you don't overpay. If we overpay by 2k per month we reckon we can clear it in 20 years. But I have not taken into account potentially higher cost of living when dc grows up, or risk of losing jobs, etc..

I think when you get older you are less fussed in house renovation, you could easily afford a lovely two bedroom cottage which would reduce your bills.

If you can afford it, and I think you can, you only need look at the short term gain her, space for the kids, offices for you and DH - adding value to the property ready for selling.

Nothing is forever - and you won’t want to live in a big house with all that cleaning maintenance huge fuel bills.

House prices won’t slump that much

@BarbaraofSeville

The 'third of your income on the mortgage' rule of thumb is less applicable if your income is very high or very low, so don't focus on that.

If you earn a lot, even if you don't have 2/3 left, you still have a lot of money left.

If you don't earn much, even if you have a lot more than 2/3 left it might not be enough for food, bills etc.

But check yor budget carefully. Whether it works for you depends on expectations re big ticket items like cars, holidays etc. If you spend a lot on these items, you might start to feel the pinch if you're also paying a big mortgage and renovations.

Have you been approved for the new larger mortgage? That includes quite a detailed analysis of your finances and is quite conservative so if you pass that, you should be able to afford the new mortgage.

Plus you'll be in a good position to downsize when you're near retirement age. But do you want to go through the upheaval of a major renovation?

Lots to think about.

The budget has accounted for holiday, 5k per year, not excessive We drove 2 old and cheap cars. Mortgage is approved principally. The house is livable after all the current vendor has been there for decades. You are right. The distraction of renovation is annoying

We were in a very similar situation and went for the house. No regrets here at all. What is your deposit for the house? How much do you need to borrow?

NatriumChloride, the OP said they sold their house very quickly, then in last line states@stay and be mortgage free in 5 years' - so definitely sounds as if they may change their minds re. sale and drop their buyers in it. Not nice.

I would move into the dream house and probably get a home improvement loan to crack on with the renovations. your DC are young and they’ll only grow and grow your current house will feel small! I know because I’m sort of stuck in one, but the jump to a bigger house in this area is another £300k so here we are.
If you plan to carry on working and there’s no reason to go for mortgage free like plans to travel etc then do it....
Don’t take for granted you’ll be here at 70, I worry like that about the future but hey it’s 30 years away and a lot can happen between now and then (good and bad). It’s tomorrow’s problem and you will have options when you get there.

If your heart is in it I’d go for the reno then just be careful (don’t overspend like mad on it, it would be easy to do). I think a nice home is great for family.

But you won’t have a mortgage until your 70s if you sell earlier pay it off and downsize.

I would do for it. I'm mid 40s with a mortgage higher than your entire households costs. I won't be paying the mortgage until I'm in my seventies as I will downsize long before. I'm my view. Real estate is the absolute safest investment. Yes prices move around, but really trend up over the decades.

@RiverSkater

Here is a biscuit.

What a sad idiotic response.

We took out 25 years because it was the longest we could get and would have taken DH up to 70 (I’m younger so have a bit more space in that regard).

I’m not the mortgage guru in our house but it’s remortgage time for us, we have got a fantastic new rate and fixed for 5 years. We are making a steady overpayment at the moment and have already paid off 15% of the total mortgage (as well as completed the internal renovation). Plus the house is worth more than we paid for it now too.

Well 2.2k out of 8.6k is 25% which is completely conservative. Can you reduce what you pay into your pensions slightly.

I know lots of people who earn well & take out massive mortgages because that's the only way they can afford it but many they aim to sell up later as opposed to stay there forever.

Bit nosy but how do you earn so well despite not starting work until your early 30s?

we need to think of old age and retirement fund, downsizing is the one of the very few ways to release fund without getting taxed.

I surmise that these high earnings don’t derive from jobs in finance.

The very best way for you both to save tax is to put as much as possible into your SIPPs. And yet, you think it is more tax efficient to stop those pension contributions in order to take on a big 30 year mortgage on an illiquid asset that might increase in value and deliver you some tax free profit?

Firstly, there’s no guarantee that house prices will continue to rise. They are already unaffordable, demonstrated by a household with a high income having to take on a 30 year mortgage.

Secondly, don’t be so sure that private houses will remain exempt from capital gains tax. Nothing is sacred now that the country is basically bankrupt and that would be an easy wealth tax for any government to impose.

Thirdly, I find it astonishing that you think that a possible future tax free gain on this house - with many unknown renovation costs - is likely to deliver a better pension than making contributions to your SIPP at 40% off, with years of future growth in equities. That’s not certain either but it’s a much better bet than your plan, which I think is barmy.

Lastly, do you have any idea how much your mortgage would cost if base rates rose to, say, 5%? Or how much extra interest you’ll pay over 30 years rather than 25?

If someone said to you, hey, how about reducing your disposable income in your 40s, taking on a load of hassle and unpredictable expense and stopping contributions to your pension (which you admit is underfunded) for a highly speculative investment that might deliver you a gain on an illiquid asset, what would you say? I know what I’d say: no chance.

Go for the big house now

Its not the right house - the right house for you shouldnt need this amount of soul searching and financial looking through. It just would be and you would without hesitation take it on