£450K inheritance for a deposit. How much should we comfortably borrow

[Secretservice009]

Hi name changed for this one. DP and I are long term renters but he has recently been left circa £500k by his late mum. His plan is to put £450k in a house for us (in both our names we are getting married early next year) and then we can borrow on top to get a big enough house for our blended family. Together we earn £150k after tax, we both have our own businesses. We are 49 so can only borrow for circa 21 years. There is a house we love at circa £750k (SE) monthly mortgage payments would be circa £2k a month. We have had a much lower rent renting from DP's uncle until now so aware we will need to budget and plan more going forwards. Would £2k a month until the age of 70 feel too high? Is it too risky with our ages or do you just sell it and when you need to? Will have approx £75k in savings remaining with our current savings and rest of inheritance. No other debt. Would be interested to hear how it has gone taking on a bigger mortgage at this sort of age thanks x ps I know it was a big inheritance but we would much have preferred if MIL was still here xx

I would borrow on the longest term possible, then proactively overpay as much as you can each year. The mortgage may well be gone years before you turn 70, and everyone will benefit from the space now.

Id reduce the term of the mortgage by 5 years and overpay the maximum you can every year. Make hay while the sun shines and all that. And get some pensions on the go!

Get proper financial advice. Anticipate not being able to work until 70 at the same level as now.

You need to do a budget for the lifestyle with the house as well. It's not just the mortgage you need to factor but the cost of heating it, council tax, home insurance, etc.

We moved from a 3 bed semi to a 5 bed detached house. Due to equity we had built up in the first house there wasn't much difference in the mortgage £600 to £750 (fixed 5y so not at current rates yet) but council tax is £100 a more, heating is £60 a month more, home insurance is more - you would need buildings insurance as well as contents

We have life insurance that will pay off the mortgage that is £40 a month for both of us (one policy each)

You want to consider critical illness and income protection cover too.

Once you have all of those costs, add in decent pension planning - how much work would you both have to do and how to afford this house and lifestyle, then as part of your 65+ plan what would you need to be able to afford this as you reach the age where some people are thinking about slowing down and approaching retirement age.

We worked out that on our salaries there wasn't a benefit to critical illness and income protection as our lifestyle was more than covered by either our wages and we worked out that we could also afford it on both of us on lower salaries. We were therefore able to save quite a lot when we had two wages and have a considerable buffer. Now we are on one salary and not had to adjust our lifestyle

I may be missing something, but if you are in a position to overpay, then the length of the mortgage - to 65, 70, 85 even, is irrelevant isn’t it? You pay interest on the current outstanding balance not the period over which you take out the loan? So long as you are aiming to pay if off before, say, 60 it doesn’t matter whether the loan period had 5 or ten years to run because there is no outstanding debt left?

DH and I have a mortgage that runs until we’re about 80, I think, but we have an offset mortgage that we almost fully clear on a regular basis and draw upon for home improvement projects or to buy a second property etc. We’ll be able to just access that money until we’re 80 without having to take out an extortionate equity release/secured loan of any kind.

Mortgage to 68 or 70 seems ok to tie in with retirement. You can always downsize when the children have left home.Probably time to think about your pensions too. In your position with high savings and higher rate taxpayers consider a flexible offset mortgage.

Just to say thanks to everyone who commented, we will look into all of the suggestions. It is such a difficult one because it would be life changing to have a house big enough for all of us but understand about the long term financial planning and not wanting to work this hard until 70 so we will have to have a think and find some professional advice xx thanks again v useful! X

I would say 2k is fine and you can easily overpay but then you have hardly saved anything despite cheap rent so who knows.

There is nothing wrong with a mortgage till 70, very normal for many. But overpaying is also normal. What do you actually need to live on?

eg can you allocate 4k to mortgage/overpayments
4k pensions
4k for bills/living

Please advise him to protect his share of the property, especially with blended family, so his percentage should be 80% not 50% (£450k inheritance + £150k mortgage).

He would be an absolute fool if he doesn't protect himself in case of divorce.

This might be brag post..

That's not true, practically every person I know in 40s will finish their mortgage in early 50s.

I would buy a £450k house if I were in your position. No brainer.

How do you plan to maintain & handle the running costs of the house when you retire if you could be relying on state pensions & little else?

presumably you don’t know everyone though?

I would say your pool is quite small as the average age to finish a mortgage is 64…

If your jobs are stable, with those salaries and the relatively small mortgage payments I’d think about overpaying as much as possible whilst still working and also save separately towards your pensions. You should still have enough to do all of that unless your lifestyle is very expensive.

Speak to a CFP (certified financial planner) who definitely holds a statement of professional standing with the FCA. They are highly qualified and legally obliged to advise you on what is the best for you financially.

@Secretservice009 good point and something else to consider.

My partner had a much bigger deposit than I had. We got a deed of trust when we purchased it setting out how we intended to split the property should we split up. I think it cost about £200 and was done along side the purchase.
We went with we each got our deposit back and then we split the rest 50:50. We paid equal mortgage. The divide when we started was roughly 40:60 but having massively overpaid our mortgage in our first house and benefiting from moving from a covid housing bubble area in 2021 to a less desirable town we managed to build up a large amount of equity in our property and now the split is 47:53.

In my opinion, in the SE a £300k mortgage on a £750k house at 49 would be quite normal. Get the house that you like that will suit your family, overpay when you can and downsize in the future. Lots of people are in the same position without such a high income. That’s the price of housing here.

I’d be paying off £4+k a month on your income.

You really need to look at your monthly spending if you're worried about £2k on your salary. You can overpay and always downsize in the future.

Surely you can overpay and clear it before that? I’d be trying to pay £3-4k a month.

What part of the country are you in? I'm early 40s in London and nearly all of our peers only bought in our mid-late 30s, with mortgages to run to retirement age (so 25-30 years). Lots of us are hoping to overpay / pay off before then of course, but the nature of prices in London meant borrowing big and for a long time before DC came along with all the associated extras costs!

I retired at nearly 60 mortgage free, I can't imagine having to work 10 more years becsuse I have to. Give yourself no.more tham let say 62 to end to.pay your mortgage. You both need to look seriously into your pensions.
Also.not to dampen your spirits - you had as you mentioned debts. Would 2k mortgage not stretch your budget?

100%, me too. And then I'd be ploughing absolutely every penny saved from not paying a mortgage straight into the pension pots.