Am I crazy to take out this mortgage?

[helptodecide]

Hoping someone will tell me if this is a terrible idea or not before we proceed.

Myself (F24) and my partner (M29) have had an offer accepted on our first house. It’s £325,000 and we are putting down a deposit of £21,000. The mortgage we are going for is a 2 year fixed at 5.69% and it’s a 40 year mortgage. Our monthly payments will be £1600 gulp for 2 years. After the 2 years I’m hoping to remortgage at a better rate (fingers crossed the interest rates aren’t so abysmal by then!). For context although the house is expensive for a first home it is in exactly the area we want to be, close to my work and family, and is a 3 bed semi with lots of potential for extension in the future (ie this could be our long term home). In this area we won’t be able to buy much cheaper (even a 2 bed terrace is £300,000).

I am trying to work out whether this is going to be affordable for us. Our combined income is at least £4500 (fluctuates between £4500 and £4800 depending on partners overtime, and I also do some online teaching as well). I’m a vet, my partner is a HGV driver, so both in secure work. We have no kids and definitely no plans for them in the next five years.

I’ve calculated our monthly outgoings on bills including mortgage, car payments to family for both of us, car insurance for us both, council tax, gas and electric and petrol to be around £2800. This would leave us with £1,700-£2,000 month for food, social (we currently spend FAR too much on this and would hugely cut down), the cat, money towards the house (it’s liveable as is but lots of cosmetic work to do gradually) and savings.

I feel like this sounds okay, but I am currently saving £800 every month and to be honest not really having to budget at all as our current rent is only £800 between us. I know it’s an awful time to buy a house but I’d rather take the hit for 2 years and then remortgage when times are hopefully better.

What do all you wise people think?

The numbers don't sound ridiculous to me.

But don't plan on the assumption that interest rates are currently "abysmal" and will get better again. Interest rates are currently in a fairly normal range, by historical standards.

The extended period of recent history with close to 0% rates was an outlier. It might well go down a bit again, but do not pin your hopes on it going down very far.

But don't plan on the assumption that interest rates are currently "abysmal" and will get better again. Interest rates are currently in a fairly normal range, by historical standards.

I was going to say this - though you will get access to better rates as your LTV ratio improves (as you pay off the mortgage). But bank on always paying 4-5% and being able to pay as high as 10% if you needed to.

I would also say a vet and HGV driver may have secure employment but both are very good health-dependent. So perhaps worth factoring in as you age that it would be great if you could keep afloat with one wage, if needed. That's true of all of us, of course - but some jobs lend themsleves to poor health more easily.

I think it sounds ok

I think that's perfectly reasonable - £1600/£4500 is 35% of your net income which i think is fine.

Only thing i would consider is if you want kids in the near future and how you will handle mat leave and child care etc but also see you are very young so may be a long way off that!

Think it sounds fine, but I'd want to be overpaying at least a bit, since 40 years is a long old time. If you search, there are mortgage overpayment calculators that show how much you could expect to reduce your term by.

Sounds ok.
Don't assume lower mortgage costs in 2 years.
you wont have paid off much capital in 2 years. But you are young. Try to increase salaries over time instead.
Plus, you will end up paying out loads on decor furniture etc unless you disciplined and careful

Can you afford it at 15% I interest?
If not, then no

Absolutely fine. If you are a vet you will be on the lowest salary and can expect that to increase quite significantly although that may require you change practices to accelerate increases. You know you are overspending on socials so easy to cut back. The earliest you can get on the property ladder the better so good luck but don't bank on IR coming down.

It's fine. You will adjust your outgoings to suit.

At £325k that's not a first time buyer's house - surely?

I say that but I was also gobsmacked when selling our home (which was my 3rd house on the ladder) at how many first time buyers rocked up.

You both have good jobs but yes, I think £1600 a month on a mortgage is ridiculous. Personally, if you're able to easily save £800 a month, you can probably save £1200 a month - do that for another two years and have a much better deposit.

When I bought my first flat, I was working out finances. My dad told me to work out if I could still afford it if the mortgage repayment was double.
I have used that as a rule of thumb ever since.

Did you say you currently pay rent of £800 & save £800? In which case, you should be fine.
Make sure to build up some savings again if you can to cover unexpected costs relating to the house.

Sounds ok to me although I would echo the PPs pointing out that you cannot assume interest rates will drop, and indeed they might increase. I don’t think we will ever see rates as low as they have been post crash, barring another crash.

The MSE budget planner is a good tool for making sure you’ve captured all your expenses and showing monthly equivalents.

Your rent is really good so I would say to save longer and harder. Put money away as if you were paying that mortgage plus higher bills and decorating /mending things. Don't forget that you will have various fees to pay on top of your deposit and you might want to overlap your rental while you get sorted in your new house.

I think that sounds fine. Yes, overpay, Yes, don't expect interest rates to drop considerably - though overpaying should get you into the realm of better deals. And yes have plans for the 'what ifs' but I would go for it. Good luck

Sounds fine - could always get a lodger or 2 to build up a buffer of savings to protect against future unforeseen expenses.

5.69 percent is quite high however until BoE lower rates I don't think you'll find anything better. I'd be more tempted to get a tracker in the hope rates will decrease later this year as inflation does seem to be low now at 2.3 percent. I think a 40 year mortgage is fine because you are both young. You might find over time once your equity builds up you'll get a better rate and maybe even could remortgage for less years. I think as both your jobs are secure you can afford this mortgage as you have good disposable income. You'll probably find you'll go out less and have friends over more which is a cheaper way to socialise. Money saved can be used to do up house over time.

Depends where you are - tiny 2 beds round here (south east) are £380k and there are other nearby areas more expensive.

I also think it sounds fine and very typical figures in todays market. I wouldn’t be getting a less desirable house to save a few hundred an month when you can afford it.

Most people wouldn't buy a house if they thought like this!

It stacks up but another caution that interest rates may not come down much, your rate is already better than my first flat!

Are you likely to increase your income with experience?

I'd say do it.

You are paying £800 rent and saving 800 which is the equivalent of the mortgage- and at least it's going towards an asset.

On balance, I would fix the cost for 2 years opposed to a variable, for peace of mind more than anything else.

Just don't underestimate how much your bank account haemorrhages when you buy your first home.

Also start adjusting your spending now by saving what you might spend on bills etc in your new home.

The only crazy thing about that is the 40 year term. Overpay as hard as you can.