Worried our mortgage will be unaffordable when fixed rate ends

[SorryNotSorry6]

..and I don’t know what we should do about it. We’re currently on a 3.9% fix which costs us £2140 per month so it’s already quite a big mortgage by a lot of people’s standards. But it is manageable for us. Our fix runs until August 2027 but I just did an online calculator thing and the best rate it offered us came to £2450 per month 😮 so an increase of £300. I’ve read that there will be up to 4 more increases in interest rates before then and realised that if rates go up to 6% then we will be looking at £2800 a month which we really can’t afford. I actually feel quite sick. We’ve got 34 years on the mortgage already so don’t think we can increase this to reduce payments. Sorry to sound stupid but what do people do in this situation?! The only answer is to move surely?

I'm sorry OP. I remember 2008 when it all went wrong. We had just moved to a house that was a mistake. The move had cost a fortune and we didn't like it (panic buy when we couldn't find anything).

Then 2008 hit and all of a sudden house prices dropped by 10-20% and our relationship which was already on the rocks became worse. Both our jobs became under threat and DH got put down to a 3 day week. It was an awful time. Like you we had borrowed quite a lot but not up to our max. It was a different time of course and they slashed interest rates to practically zero which did cut our mortgage.
In the end we split up and sold the house getting 50K less than we paid for it (paid 405k, got 355k). We also cashed in our endowment to help but of course with the markets the way they were we would have got less for it. We were in our thirties but didn't have kids.

I know your situation is different and interest rates are on the up and you and DH are not splitting up. However it is amazing how fast it can become very scary. It is like a domino effect. Rates start to go up, prices start to go down, people's jobs became less secure or worse redundancy, there are lots of forced sales, prices drop further and so on.

As you are discovering it is a bit of a judgement call as to the best way forward.
I'm in my fifties now so my advice from someone that got themselves into a pickle would be as follows.

If you like your house and you moved to give your kids space and everything is great apart from the money aspect then I would try and stay. Selling costs a fortune and obviously is the wrong decision in the long term.

How safe are your jobs - I know that's a tricky one to answer but if they are quite safe then I would say, stay, remortgage as soon as you can to get the best rate (and yes get your LTV down to under 60% because that would get you a better rate). You should get your house revalued but if prices in your area are going down beware the value might drop below it's current value and the LTV might end up higher.

If you are on a fixed rate have you calculated to see how much it costs to get out of the rate now and pay the exit fee versus how much you would save by getting a lower rate now which of course you can tie in for a longer period.

Not ideal of course but can your kids share a room for a few years and use the spare room for a lodger. Do you have a separate dinning room which could be converted into a bedroom in the short term so you could have 2 lodgers. If you did that now you could start building up a bank of cash to get your LTV under 60%. Or you could just keep it as a safety net in case of job insecurity.

What I will say is lots of people are going to be in the same boat. Remember all the houses that were being bought in 2022 and so anybody that took a 5 year fix will be having to remortgage next year. Good in so far as you are not alone. Bad in so far as if lots of people suddenly can't afford their house and lots come on to the market prices tend to depress.

It sounds like your financial situation will improve in a couple of years when your youngest goes to school so I would just have lodgers for a couple of years. I know, it's crap but if you get to stay in your dream house for the longer term........

I hope it all works out for you.

It still applies, but only to part of the argument.

If the reason for staying is “we’ve already spent so much on stamp duty, solicitors and work to the house”, then yes, that is sunk cost thinking because that money has already gone and cannot be recovered.

But the cost of moving again is different. That is a future cost and should absolutely be included.

So the sensible comparison is not just “we’ve already spent a lot, therefore stay” or “moving is expensive, therefore don’t move”. It is to ignore unrecoverable past spending as a reason to stay, then compare all the future costs of staying with all the future costs of moving.

The sunk cost fallacy is one part of the decision, not the whole decision. The actual financial decision has to be forward looking.

But it isn’t neutral. Staying means actively choosing to keep a very large debt and accept the risks around rates, jobs and house prices.

Yes, some outgoings may fall later, but that does not remove the risk of what happens in the meantime.

Staying may turn out to be the right decision, but it is still a financial gamble, not the absence of one.

I get this, having their own rooms is good. Just see what you can do with work hours and saving anything to prepare for an increase.

Look, it's clear we'll have to disagree on our analysis of financial risk. And that's OK.

Fair enough. For me the risk is quite concrete.

If the mortgage resets hundreds of pounds higher each month and they have no real savings buffer, it only takes one redundancy, a major repair, a car failure or another jump in household costs to create a cash flow problem very quickly.

Moving has visible one off costs. Staying carries recurring costs and the risk that several things go wrong at once.

That is why I do not see staying as the lower risk option by default. It may work, but the downside is much harder to contain if it does not.

Yes ... as you've said many times. Again, I don't agree – let's move on with our lives. You don't need to keep retyping the argument.

Agreed, no need to repeat it.

The financial risk doesn’t become less real simply because you’re tired of hearing it explained.

You’re comfortable calling that position “neutral”. I’m not.

We can leave it there.

OK .. you can stop rehashing it now (for the 3rd time ...).

And yet you keep replying to tell me to stop replying. There’s a certain irony there.😂😂🤣

We disagree. I’ve explained why. I’m perfectly happy to leave it there, so perhaps we actually should.

It sounds to be like you have a ton of stuff on your plate with redundancy worries, kids with SEND and the cost of living crisis. But fundamentally you are actually in a good position compared to the vast majority in the country so I would stay put and just hope for the best and make minor changes here and there. Unless you are willing to sell up entirely, move to a far cheaper part of the country and get similar jobs it is not worth stressing about. It is beyond your control other than trying to fix early but nobody can foresee what is going to happen in the next few years. It might be WW3 and Armageddon and huge interest rates or it might start to all look up a bit post this difficult post Covid period when most people said a whole lot of authoritarian rulers would go nuts and take advantage.
I would say hug your kids tight and focus on the things you can change but don’t worry further than that about the things you can’t.

I'm replying asking you to stop because we clearly disagree, and saying nothing more – you simply keep rehashing your argument again and again. Work on your impulse control to keep arguing.

For what it's worth I think you are both making good points! I am personally quite risk averse and so, for me, not being able to put money away each month for a rainy day means we can't afford the house. When we moved here I do remember calculating up to around 6-7% and thought we could just about afford it, but my DH wasn't concerned (he's an eternal optimist, I'm the worrier) and I think that was partly because he knew the mortgage broker was telling us we could borrow another 50k if we wanted to. But that was before I reduced my hours, and now there's a pay freeze at work I don't know whether the will allow me to increase them again. It was short-sighted of me to calculate whether the drop in hours was affordable based only on our current mortgage, not our future mortgage, but this was a year ago so at that point we still had 2 years left and I was trying to solve an immediate problem.

There's all sorts going on in the background but the long and short of it is that I feel there is so much uncertainty that it's too risky for us to stay in our current home. But as a pp said, we can't fix that unless we sell and significantly downsize and/or move miles away.

I think you should prepare for the worst and hope for the best. We’re only at the beginning of the impact of AI and yes, nobody knows what will happen with interest rates but with kids to support why wouldn't you take agency and protect yourself NOW rather than waiting for life to happen to you? Personally I think the economy is only going to get worse and it’s people like the OP who have overstretched who will hurt the most. Job vacancies are at their lowest in five years and will continue to decrease partly because when push comes to shove and they have the opportunity an employer will always prefer AI or automation to the expensive costs of paying humans.

It’s really not a good idea for OP to get lodgers as she has children in that house.

Also worth noting that if you hit hard times then government support is very limited.

So I do think downsizing is the best option overall.

And now we’ve moved from discussing the argument to making personal remarks about “impulse control”, which rather suggests the substantive discussion has run its course.

You’re free to disagree with me. You’re not entitled to decide when I’m allowed to respond on a public thread.

I’ll leave it there.

“It was short-sighted of me to calculate whether the drop in hours was affordable based only on our current mortgage, not our future mortgage”

OP you are doing the typical female thing of blaming yourself and it is making you more anxious and risk averse. It is not worth sweating over, work on feeling less worried and being positive. By dropping your hours if you can teach yourself to be relaxed about it, you should be able to add some structure and stability to your children and every day lives and actually have more time to work on savings a few pounds here and there and being there for them if they have SEN. So try and change your mindset if you cannot change the rest anyway.

I think that makes complete sense, and actually you’ve articulated the issue really clearly.

Affordability isn’t just about whether the mortgage payment can technically be made each month. It’s also about whether you still have enough margin to cope with the unexpected without immediately getting into difficulty. That's what makes you sleep at night.

You weren’t being reckless when you reduced your hours. You made the best decision you could with the information and pressures you had at the time. The situation has changed since then, and it is perfectly reasonable to reassess because of that.

What strikes me is that you are not panicking at all. You are looking at the uncertainty around your income, future mortgage costs and the wider economy and asking whether you are comfortable carrying that level of risk. If the answer is no, that is important.

Downsizing or moving further away may be a horrible choice to have to consider, but choosing more financial breathing room for your family is not failure. Sometimes peace of mind and resilience are worth more than holding on to a particular house.

There are thousands of people in the same situation as you up and down the country having the same thoughts and feelings right now. You're definitely not alone but you do need to do what is right for your family. The best way to decide what that should be is to look at all the facts, dispassionately and objectively, and start thinking about a way forward. Making and discussing plans is a great way to alleviate stress and feel more in control of the situation.

Sure but kidding yourself that you are in control at all is a very middle class concept. Save, work hard, get a mortgage etc. None of us are really in control. And if you have over 200000 in equity in a nice big house in the SE you are better off than most - don’t let your worried middle class mindset of having to tick all the boxes and control hold you back. Nobody knows if this Iran war etc is going to be over soon. Last year people said interest rates were going down and everyone was fixing their savings long term on just over 4 per cent happily. Being a bit cold this winter like our grandparents and wrapping up warm etc is not the end of the world.

I think worrying about not saving anything is making it worse than it actually is. Most people cannot save anything in the years before children start school. I know we didn’t, neither did we have much in the way of holidays either, having taken on extra for a needed house extension but once the private childcare ended, holiday clubs were not as financially painful.

You have to find a way to earn more, my parents both took second jobs when theirs increased int he 89s, as kids we never went on holiday and never even had a steak. Mum cooked from scratch etc. It’s either that or lose your home. There is mortgage relief scheme that you can do for 6 months but that’s really if your income drops suddenly and can only be taken once so can provide a short term release. One of you will have to find a second job that gives you an extra 100 a week and cut back massively on things.

Yes I suppose we would need to explore options if it came to this and we didn't want to move. Without sounding too pearl-clutching and middle class I am just very surprised that it would be anywhere close to coming to this. We earn good salaries in professional jobs. I suppose we just didn't think that deeply about taking on a large mortgage as pretty much everyone we know is in the same position, houses here are so expensive but salaries are generally quite healthy and certainly above national average so I guess everyone (including us) has a lot of borrowing power on paper. Most of my friends also have car finance which we don't have and we are also generally less spendy with things like meals out, holidays. Perhaps we are all in for a bit of a shock, and gone are the days where teachers, lawyers, middle managers etc could afford to live in a 4 bed in the south east.

I think it is all going to be fine. The Russians and Iranians are messing around because Donald Trump has his mid terms coming up and can’t do much. But I highly doubt the whole Western capitalist system is going to come crashing down any time soon. So hold your horses and carry on, tighten your belts a little and you will be just fine. And if you aren’t going to be, given the good position you are in, there are going to be way worse problems to worry about. That is pretty much my attitude.

I really hope you're right!

Cool. Got it.

You say move, but how can you find something suitable for £100k less???