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?

@reprehensibleme

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.

In this crazy market we need to have sold in order to view houses. Our buyer know we are looking. They are not starting any process until we told them to

The only thing I would be cautious about is assuming huge price growths so be mindful that downsizing may not fulfil your retirement needs so still save, overpay etc.

I think property particularly expensive property will stagnant or only make small gains & thats with interest rates as they are, who knows what will happen then.

We wanted a 28 year mortgage (we are 41 now) and the bank heavily encouraged us to go for 24/25 instead - not sure we would’ve got it so easily if we had insisted on the longer term.

You should move into a house that’s right for you - sounds like you have the money to do it. But it doesn’t have to be this one that’s also a bit of a money pit.

@garannenee

The only thing I would be cautious about is assuming huge price growths so be mindful that downsizing may not fulfil your retirement needs so still save, overpay etc.

I think property particularly expensive property will stagnant or only make small gains & thats with interest rates as they are, who knows what will happen then.

Just out of interest why do you think expensive property will not rise as much as standard property? I am not sure if this house is classed as expensive. A good detached 4 bed house in good catchment here is about 500+k. This house bigger but old

@Enessie you clearly have a very high household income so i am sure you can afford it. It sounds like your mortgage cost must be very low to only have a £2k spend in total on the house - is it the long term that makes it so reasonable. What would happen if rates were to increase substantially? The question is more do you really want to? Renovations when living in the house with kids can be absolutely grim, would you need to factor in renting somewhere whilst big jobs were done.
I do not buy in to the concept of the forever house, no property can be right for a first time buyer with little deposit to a couple with a growing family who need to be convenient for schools to an elderly couple whowould prefer to be living on one level with good public transport links surely

It sounds affordable other than perhaps the renovation cost. Using your estimates, wouldn't it take a long time to save enough for the renovation? (Sorry if I've missed something)

We have the big house and garden. We're on an interest only mortgage although these are getting very hard to get when we remortgage for better rates. We have ISAs to pay off the capital as and when.

It's been lovely to have the space but it does come at a cost in time and money. Our house required major renovation when we moved in 10 years ago but it's now getting to the point where things need redoing again. This year we had to have a new pool heater and cover and our previously new patios needed repointing. I'd say our maintenance costs are typically £10-20k per year although my handy husband does as much as he can himself. Even with a gardener, we never really have time to get on top of the gardening and other jobs. Our friends live in a new build and have idyllic weekends wandering around coffee shops and generally enjoying life rather than being stuck inside doing jobs.

Both of us agree that we will move to something smaller and more manageable next time. We appreciate that we're very lucky to be able to afford our house, and it's been a good investment financially, but it's not without its downsides. That said, if you feel you won't be happy staying where you are permanently, perhaps it's time to be brave and take the plunge.

You said the house was 750k & needed 140k spent on it so I would class that as expensive.

Imo the property ladder doesn't really exist any more & historically quite a lot of moving was driven by equity gains. It's a lot harder to make equity now as FTBs are older & the bottom rung is higher plus moving often is expensive when you factor in SD. And often even if you do make money on your first sale what you are moving up too has increased by the same % which is more cash so many get stuck on the ladder.
Plus we have a backdrop of increased taxes, public sector wage freezes so I think the next decade will be tighter for many.

I'm 50 and wish I had the problem of too much money to know what to spend it on. No pension here either. I'm sure you'll figure it out

I think you need to re look at your overall plan.

Yes it is tax efficient to put money into your pension but you might want to think about looking forward to releasing it to pay off your mortgage before you are 70 or looking at the numbers again and putting less into your pension and more into paying off the mortgage or saving for the planned renovations.

We're on an interest only mortgage although these are getting very hard to get when we remortgage for better rates.

I didn't even know these were still available, a lot of mortgage vehicles have been removed from the market which is another reason it's harder for younger buyers.

I would definitely do it. I would go so far as to say that you can easily afford it and wondering why you are even questioning it.

I do think you can afford it though

2k spare per month is huge (and more than a lot of people take -home income!).

I didn't even know these were still available, a lot of mortgage vehicles have been removed from the market which is another reason it's harder for younger buyers.

They are available but the criteria have tightened substantially from our first one 20 odd years ago. I've just remortgaged and the lenders wanted coverage of the full mortgage amount in savings and investments. For equity investments, they would only take 80% of their current value and assume zero future growth.

Although there's financial upside in borrowing at less than 1% given average equity returns, as you say it precludes most younger people who haven't had chance to put their capital element aside in investments to grow. It's worked well for us as we've had to pay less than the capital amount in a traditional mortgage and our investments exceed our mortgage amount, but it's also much higher risk.

I would look and see what you could get in a slightly different area - I'm similar age and wouldn't want that kind of mortgage, we earn combined a similar amount and no school age children

[quote Gassylady]@Enessie you clearly have a very high household income so i am sure you can afford it. It sounds like your mortgage cost must be very low to only have a £2k spend in total on the house - is it the long term that makes it so reasonable. What would happen if rates were to increase substantially? The question is more do you really want to? Renovations when living in the house with kids can be absolutely grim, would you need to factor in renting somewhere whilst big jobs were done.
I do not buy in to the concept of the forever house, no property can be right for a first time buyer with little deposit to a couple with a growing family who need to be convenient for schools to an elderly couple whowould prefer to be living on one level with good public transport links surely[/quote]
Yes we max out the allowable term. 30 years (which is what makes us nervous) Mortgage ~1650 per month. Yes at 2k saving per month at best case scenarios it will take us the first 5 years to complete the reno. That is if Reno cost hasn't increased insanely

Yes you can afford it, I am presuming your incomes are likely to continue to grow?

We are late 30s and we are looking for something very similar.

One thing I'd caution is the £150k renovations - is that absolutely realistic? Materials and labour are in very short supply just now. My parents' £22k project has become a £50k project during the build

Millionnaires and their millionnaire problems!

No I wouldn't be a slave to a long expensive mortgage to buy a house that exceeds my needs and would be expensive to buy, renovate and maintain.

Life is for living - take some nice holidays instead.

@mim321

It sounds affordable other than perhaps the renovation cost. Using your estimates, wouldn't it take a long time to save enough for the renovation? (Sorry if I've missed something)

We have the big house and garden. We're on an interest only mortgage although these are getting very hard to get when we remortgage for better rates. We have ISAs to pay off the capital as and when.

It's been lovely to have the space but it does come at a cost in time and money. Our house required major renovation when we moved in 10 years ago but it's now getting to the point where things need redoing again. This year we had to have a new pool heater and cover and our previously new patios needed repointing. I'd say our maintenance costs are typically £10-20k per year although my handy husband does as much as he can himself. Even with a gardener, we never really have time to get on top of the gardening and other jobs. Our friends live in a new build and have idyllic weekends wandering around coffee shops and generally enjoying life rather than being stuck inside doing jobs.

Both of us agree that we will move to something smaller and more manageable next time. We appreciate that we're very lucky to be able to afford our house, and it's been a good investment financially, but it's not without its downsides. That said, if you feel you won't be happy staying where you are permanently, perhaps it's time to be brave and take the plunge.

10 to 20k per year? Wow.. But sound like your house is much bigger with acres of garden? Mine doesn't have a substantial plot. The contrast with your friends in newbuild is exactly the debates I had with Dh, he said he doesn't want to be a slave to the house.

@mim321 yes, I have lots of older colleagues who it paid off for.

* I'm similar age and wouldn't want that kind of mortgage, we earn combined a similar amount and no school age children*

I see this a lot on MNs but it never reflects my reality. Everyone I know under 50 is mortgaged to the hilt without much choice.

The younger people I know pay more in rent than those mortgaged to the hilt despite often earning less. It's ridiculous.

exactly the debates I had with Dh, he said he doesn't want to be a slave to the house

Then he’s smart. What happens if you want to scale back your careers in your mid to late fifties? You can’t.

Love how all the people offering the ‘go for it!’ advice have presented no basis for that opinion. No, just ‘go for it!’.

When people enthusiastically talk up an asset class, ask yourself why. It couldn’t be that they themselves are heavily invested in it, both financially and mentally, could it?

@Boatonthehorizon

Millionnaires and their millionnaire problems!

We are far from being a millionaire. This is very realistic dilemma for many middle income families who are taxed to death, don't get any benefit, and need to make plan that maximise financial gain for old age. As mentioned,we only started working in early 30s, my state pension, if still available then, isn't much