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?

Are you describing yourselves as middle income on £155k? I think if you place you household income within the UK as a whole you’re more like top 5%, so probably not a helpful comment!

155k?

You can afford the big house.

Well, people just have different priorities. We want a large house and garden and we're prepared to make some sacrifices or at least some financial decisions that allow that. Other people don't have the same priorities, and that's fine.

Whether it's stretching to buy a house at £250k or £2.5m, some people will choose to do that, others won't. Down people will be able to afford it, others won't.

I'm not sure why people thinking/talking through pros and cons of financial and lifestyle decisions gets people's backs up so much. It's weird.

@NatriumChloride In the ops original post she says they sstc

To be fair to the OP I think she can comfortably afford this. Do you both earn similar?

I know it’s none of my business, but what did you do until your 30s if you weren’t working? And what sort of jobs do you do now to be earning so much after a few years?

@piglet81 I was intrigued by that too 😆

Yeah we are also not millionaires. Two state educated professionals, one of whom grew up on a council estate, and the other who is an immigrant who didn’t speak English until age 12. This is the product of hard work, saving, investing. Of course we are privileged to have good jobs, but we do not have money behind us.

My main concern if I were you would be job loss. How secure do you think your jobs are and could you pick up another at similar pay fairly easily. I don’t earn a lot at all so I think I would have a good chance of picking up another job that covers my outgoings quickly. You couldn’t pick up any random job and cover those outgoings - you would have to stay as high earners or else lose your house.

Do you have children that will want to go to university? Your high income will mean you are expected to help them quite a bit financially. If you have more than one go at a time then that could be a lot of money. Do you want to have savings to help your kids with a house deposit - or even to have and insure a car - several thousand a year at first.

The other questions I would be wondering about (to myself to think about/turn over) are “Why buy in a boom if you are in no rush? - (your house is Ok), “Will I mind if the house value falls and I am in negative equity?” “Can I cooe if interest rates rise a little/ a bit more”, “Am I doing the right thing buying something much more expensive than I planned that still requires renovation on top?”

If you love the house and want to spend time and money on renovations to make it your pride and joy then go for it. Are you a home bird? If you want a comfortable home but want to get out and about with the kids on holidays and activities (with a low maintenance property) then keep looking or take a break and look when things are less crazy.

@garannenee

* 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.

But that's just your bubble. Most people I know over about 40 bought years ago and have tiny mortgages or are mortgage free. We could be but the interest rate is less than 0.5% so are putting the money into pensions and investments instead.

What other debts, loans (inc cars) and child care fees do you have? What is your pension set up?

On paper, yes you can afford it. It is probably worth looking at what you spend regularly on day to day things anyway to give you a bit more of a cushion financially (something most people should do regardless of income / potential house).

The question is really what you want to commit to long term rather than whether you can afford it.

If you take it on, then you are committing your income to the house - which isn't without risk. It could affect when you retire and how much you save in pension in the interim. Yes you could sell up and downsize and use that to part fund your pension too, but you need to be prepared to do that at some point. Do you want to be moving in your 60s?

The alternative is you could pay off the mortgage and start investing in your pension - you might want to seek financial advice on how best you can do this to make the most of your tax allowances. This would give you more short term financial security as it doesn't involve the risk of a mortgage and because it allows you the freedom to potentially retire earlier. You also dont have the hassle of moving. However you have to stay in a property you don't seem you really want to be in and has drawbacks.

So its really a lifestyle choice. How much value do you place on the extra space and how much do you value guaranteed financial security much earlier/early retirement options.

There is no right argument here. Its entirely up to you.

And thats really your question because on paper yes, your numbers do add up and you can afford the house. Its more do you want the commitment and lifestyle of the house rather than about £££ to put into the house.

You are asking the wrong question in making this decision.

Seriously go and talk to someone who can give you pension advice on the basis of staying put and then have a long hard think about how that compares to the house you are looking at.

Alternatively, hang fire and try looking for a house in another couple of years. You dont have to make this decision now if you can't find something you like in your intended budget.

Its the renovations part that would concern me more. It could cost a lot more than the estimate. And also interest rate could rise which will really hit those with big mortgages. I wouldn't take a huge leap upwards in price at this particular time. A house price fall is on the cards. But its anybodys guess.

Neither you or your partner sound excited about renovations (I think you said your partner actively doesn’t want to do it). Renovations test the resilience and relationship of even people who actively seek them out.

Mortgage free IMO

@piglet81

I know it’s none of my business, but what did you do until your 30s if you weren’t working? And what sort of jobs do you do now to be earning so much after a few years?

Did a few years of non professional jobs before uni. Then did degree and postgrads research which took too long. Now in technical niche jobs. We don't see our income rising much in the future.

Personally I would go the low mortgage/mortgage free route...if/when the shit hits the fan (like it just has for the last 2 years) then you are in a much safer position. I am currently mortgage free and I wouldn't change it if I REALLY REALLY didn't have to.

But that's just your bubble. Most people I know over about 40 bought years ago and have tiny mortgages or are mortgage free.

Maybe it's because I'm a Londoner, I simply said it doesn't reflect my reality because it doesn't. Likewise being mortgage free in your 40s is another bubble.

@Nesbo

Are you describing yourselves as middle income on £155k? I think if you place you household income within the UK as a whole you’re more like top 5%, so probably not a helpful comment!

To be in the top 1% of income tax payers in the UK (i.e. to be among the 310,000 individuals with the highest income), a taxable income of at least £160,000 is required. £236,000 is required to be in the top 0.5% and nearly £650,000 to be in the top 0.1%.

Source Institute for Fiscal Studies.

In terms of household income (rather than individual), the OP falls into the top 2% as well.

It is not a 'middle income' household.

Similar position. We went for the bigger house, we are actually moving at the end of the year. Same for us, we realised during the pandemics/lockdown that we really don't have a lot of space. It's important to us to have a nice home.

I think that your gut feeling is that this is the wrong house. On paper it might sound amazing but there is something saying no. I do think you would like to move but this is not the one for you.

Keep looking.

Well I would argue that the top 1% of income tax payers is not necessarily representative of the actual 1% in terms of household wealth as the actual rich eg those earning a million can & do reduce their income tax bill significantly. Nonetheless the OP has a good household income.

Yes, security of income is a big consideration. If you lost your high income, because it is high, and couldn't get a similar paid work, you might struggle on a lower salary. But you'd still have options before you ended up in the poor house.

But I would be concerned that you might not be able to sell the big house for the big money if you needed to, because sometimes they can take an age to sell, because the number of people who can afford to buy and run one is very small, especially in times of economic uncertainty. This happened to someone I know. Bought a very nice large house with the aim of releasing money as a pension plan but when the time came, they couldn't sell it for what they wanted to and the plan came tumbling down somewhat. As far as I know they're still living in it and working to pay the mortgage even though they're past retirement age.

I fell in love with a bigger house but we didn't buy it (just couldn't scrape the money together) and I've lined for it ever since. 😞 But I agree with a PP, there was no soul-searching. It was the right move. It was an easy decision. Just didn't work out.

Are you dithering because your DH doesn't want to buy it? Or are you both in two minds?

It seems daft to buy a huge house weeks before you won't actually need 2x home offices anymore.

Honestly? Unless your current house has started to give you the ick 😆 I'd extend it. And another house will come up in the future that won't require anything like this amount of thinking. It'll be easy.

*pined

@BarbaraofSeville

Yes, security of income is a big consideration. If you lost your high income, because it is high, and couldn't get a similar paid work, you might struggle on a lower salary. But you'd still have options before you ended up in the poor house.

But I would be concerned that you might not be able to sell the big house for the big money if you needed to, because sometimes they can take an age to sell, because the number of people who can afford to buy and run one is very small, especially in times of economic uncertainty. This happened to someone I know. Bought a very nice large house with the aim of releasing money as a pension plan but when the time came, they couldn't sell it for what they wanted to and the plan came tumbling down somewhat. As far as I know they're still living in it and working to pay the mortgage even though they're past retirement age.

Out of interest, why is your friend not able to shift the house? Is it simply because the market pool for such property is smaller? Or bad market timing, or.. ?