Should we max out our mortgage?

[boardergirl]

We have 3 small children (and maybe want a 4th) and currently own a 2 bedroom flat. We are thinking of putting our flat on the market in the spring in order to hopefully buy a house by the end of the year.

My dilemma is how big our mortagage should be. My husband has been told by an agent we could get £190k so with a £30k deposit we could buy a big 3/4 bed house that we would stay in forever, or get a smaller 3 bed house with about a £140k mortgage that we maybe would have to sell in 5-6 years as it wouldn't have enough living space for 3/4 teenagers- is a living room and kichen/diner enough living space for a family of 5/6?

Our total take home income is about £2200 a month a £190k mortgage would be about £1000 a month is this affordable with having to pay all the moving debt as well.

I also own a 1 bed flat that I don't want to sell yet- hopefully in about 5-6 years we will have 10-15k equity from that.

I'm really confused about what to do should we struggle financially to buy a forever house or sell again in 5 years?

Does anyone have any similar experiences and advice?

I have to agree, I would get the flat sold, I know I cannot be stuck here for the next 5 years so it's now or never (well five years) so am going to try and move.

Look at some figures on a mortgage calculator first, this is as good as any

£190k at 4% comes out at just over £1k a month, however at only 8% its nearly £1500 a month. In the nineties interest rates were in the low to mid teens - if (when) that happens again you would be completely buggered. past base rates

When we bought our current house, about half our outgoings was mortgage, our income however was higher than yours so more disposable income and we knew that my income would double when I qualified.

This was also when the expectation was that house prices would keep increasing.

Now our mortgage is about 10% of our take home pay and I shudder when I think of how much of a risk we took taking on so much debt.

I really wouldn't do it, not in the current climate.

This was also when the expectation was that house prices would keep increasing.

If you can give it 12 months you may well be in the position of buying at the bottom of the market which would be excellent.
Is your hubby at the top of his game or is he likely to get a few more promotions ? That would make a huge difference to the decision too.

God, I would'nt sleep with that figure. 1/2 salary going on mort, It's Just me, wife and two kids, no more planned.
We have sold ours and will then have 155k in cash for our new buy.
We went to see Bank yesterday and they would offer us up to 125K mort on a 28K salary if we wanted it, Madness!!
Weve found a house that we like but renovation likely to be about 65K and want fund for contingency and new furniture.
Weve opted for 70K which comes in at £350 a month (about a 20% of salary) and that still makes me worry if rates shoot up. I am (u guessed) a worrier!!!!

MrMayoNessie - you won't meet many people under the age of 35 who don't pay 50% of their income in mortgage, seriously. It used to be a 1/3 didn't it, when did that go out of fashion, shame.

Thanks for all your realy helpful comments - I don't have internet at home hence slow response.

I have so much to think about now! I should think we'll end up going for the cautious option and have a cheaper mortgage but maybe not sell my flat though I'm in two minds about that.

I don't think our salary will ever go up massively I am hoping not to have to work full time again for a long time!

Interesting that everyone is looking at the financial aspect.

To me, with small children it is important to give them stability. Moving them now is easy enough, but moving when children are older is very disrupting.

So I would be aiming to buy something now that will do you until the childen grow up. That is not necessarily "forever" but for the period of their schooling at least.

Space isn't everything where teenagers are concerned.

I don't think we would with those figures. We're considering moving now and I'm slightly twitchy about a bigger mortgage that is nothing like the almost 50% of income you are talking about with the forever house. We're talking about going from 10% to about 20% and feeling a bit stressy about that. Interest rates WILL rise, and there are other unknowns that might affect income - redundancy, illness, DCs needing more than expected level of care/support, family member becoming a dependent unexpectedly. None of these things are nice to think about but they're a good reason not to push to the absolute limit of what you can afford. Also, it's one thing saying 'we can cut out x and y and live on z per month' if it's for a short time, but if it's indefinitely, then you might feel that life has become about nothing but making the mortgage payment.

Given that you are in the position of having options, i.e. you could have the slightly smaller house, I would take that option.

Is there an option to get a smaller house with potential to extend in future if/when you need to and can afford to?

FWIW I don't think kids necessarily need space if they're never had it IYSWIM. If you live in a palace then move to a small flat then yes you notice it, if you have always lived in a moderate sized house and shared a bedroom with brother/sister etc. then you don't miss the space.

D

sell both of the flats now before they really crash.

Rent a 3 bed house in the area that you want to live.

Put the cash safe and make sure that it keeps up with inflation. Keep saving.

Get your kids into the local school that you want which will be easy with an address in the area.

Buy the house that you want at your leisure with your larger deposit in a couple of years when prices stabilise and have stopped falling.

Do not take any advice from estate agents or mortgage advisors.

At £1000 from £2,200 you would be committing to 45% of your disposable income. In some countries they limit mortgages to no more than 30% of disposable income, that would be £660 a month on £2,200

The thing is if the UK had the same 30% rule you would be able to buy the larger house for the price of the small one - but unfortunately lots of people think that debt is wealth - so they have overborrowed and pushed prices up for everyone.

You would be mad to take on that sort of mortgage ratio with rates set to rise, and the fact that you are considering another child - your income will suffer if you do that!

I wouldn't/couldn't do it.

How much do you spend on outgoings at the moment? Try saving £1,000 a month and see how you manage.

Can I just ask? Where have you managed to find a bank that are offering you £190k on a take home pay of £2200?

We take home just over that amount and struggled to get a mortgage for £80k with a £15k deposit!

What richyc said.

Sell up. Rent.

And disregard the stuff about moving being disruptive for your children. They can certainly adjust a couple of times through their schooling FGS.

richyc, the only problem with your scenario is that its pretty impossible to find a savings rate that will keep up with inflation at the moment!
Other than that, I too would advise caution.
How safe are your jobs? how carefully have you looked at your outgoings to see whether you can afford repayments NOW, never mind on double the interest rates? I would reckon on assuming long periods of interest rates of around 5-6% and possibly shorter ones of even higher.

elliot, it is impossible to find a high street account offering inflation rates but it can be done. There are plenty of ways to do it. My cash is laughing at inflation. But at the end of the day any descent isa is better than nothing and continuing to save is important.

op, paying £1k with an income of £2.2k may sound manageable now, just. Factor in interest rate rises and it looks a bit worrying. Will your wage cover everything if hubby loses his job? More to the point, since you are considering another child, would his wage cover everything when you are pregnant and stop working?

A possibly much higher outgoing to be managed with half of the income only results in tears and repo.

Far less painful to accept your lot and what is out of reach than to overreach and lose everythin......especially with kids.

Do the rent thing. Save up. Buy later at a lower price with a bigger deposit.

DO NOT TAKE ON A LOAN OF £190k when your income is just £2,200 per month with three children to support. You lose your home and the stress that will create in your family is very serious indeed

I am quite worried about how everyone thinks that prices will crash.

I hadn't considered renting for a while but I suppose that could work. We could always stay in our flat another year but now I'm worried that the price will fall further. I am reluctant to sell the other flat though seeing as costs are covered easily.

I would be moving in the same town so no need to disprupt schooling whatever we choose

Fatimalovesbread got the big mortgage offer tthrough estae agent mortgage adviser and a similar size one from Santander. We are mid 30s and have very good credit record.

you just laid your cards out for the estate agent. They work for the vendor and are duty bound to get the best price for their client. Now you can not bargain because they know exactly what you can pay and will squeeze you for every penny. There is a massive conflict of interest there, they should be able to sell you a house or a mortgage but not both. No point trying to make lower offers or haggle when they know everything.

Time to do some real research. Prices have fallen, are falling and will fall further. Look at the land registry figures for the sold prices in your area to see what has been happening. The financial situation means that prices have to fall and the likes of flats will go off a cliff.

Look at how many flats are probably already on sale in your area. Those are all people trying to bail out. Take no comfort from their deluded asking prices but check how few are actually selling and what they went for at the registry.

The costs of the other flat may be covered but if it slips into NE then it is a weight around your neck and you wont be getting another mortgage. Worse yet, if you end up with a void because loads of flats are available to rent and rents fall then it is another set of bills.

You really need to do some reading. Stay away from the property porn, the tv shows and estate agents. Look at the cold hard facts. Then sit down with a calculator and work out what you could really afford.

Personally, I would get the flats on the market now, chances of selling them quickly are slim anyway. And rent a 3 bed house, get a feel for the bills and settle down. Give yourself time to do all of the research and look around for something that you really want. Use the time to save more.

I have put my money where my mouth is btw and have done exactly this, sold and am renting. Listening to people saying go for it when they have little idea and not the balls to put their money where their mouth is wont help you.

GL

forgot to say - if you are using rightmove and alikes to look around then install PROPERTYBEE.

You need firefox to use it so download firefox and property bee.

PB tracks all alterations made on righmove and other sites and shows you the true history.

You dont get any false impressions when you can see the entire history of places for sale. How many months they have been on, how many times they have dropped their asking prices, how much prices have dropped, how many times a sale has fallen through and the place has come back on.

Dont need to listen to and estate agent bs when you know as much of the history as they do.

Also, if you look at anything then look at the price that the owners bought it for at the land registry. It gives you an idea of their position and a reasonable price and if they are likely to sell at a reasonable price or are in NE so wont take an offer.

Your hands are tied though when using an ea that has been through your laundry already.

If an ea ever says that you have to see their advisor before they can accept an offer tell them that you will have your solicitor right to them and confirm that you are good for the offer amount. Tell the solicitor to keep their mouth shut about what else you can afford if you could pay more. If the ea ask to be shown a mortgage in principle cert then make sure you get one for the offered amount and never give away your ceiling.

richyc - do you think rents will fall?

Just wondering about this as lots of people I know who could afford to buy are now talking about renting. They've got families and won't want to be moved on after six months so are looking for longer lets. Should they go for, say, a two year lease at fixed rent? Or should they get a less stable lease for six months but that they could bargain down the price after that?

I completely agree with GetOrf
I would already feel uncomfortable paying out nearly half our income per month. We could have gone for a much bigger, pricier house but we decided to opt for something we could afford even if only I was working (part time) - it is still an ample size and in the right location. But then I am not much of a risk taker!

I'm going through the same dilemma. First of all you have to work out what mortgage you can get at the moment given the high ltv rates required (most mortgages you need at least 15-20% and good rates are much higher). Go online and do searches through the comparison websites and then look at each bank. You have to decide how much of your income can go to the mortgage and how much is too much. No one can answer that but you.

Secondly don't bother asking estate agents anything or volunteering information on finances. They're only interested in the seller and what they can get out of you. If they ask about a mortgage just say you have it in hand. You shouldn't need to prove you have one because it's not possible to get one until you have a property under offer. Mortgages in principle are usually used for auctions where you need to move very quickly. Also if anything you look at has had building works done on it you can depending on the borough find out if they got planning consent for the work which can also be a useful negotiating tool.

Good luck with your decisions.

That's a very large proportion of your net income to be spending on a mortgage, and rates are only going to go up.

Also bear in mind that a larger property will probably have a higher council tax rate, as well as larger gas and electric bills, higher buildings and contents insurance and higher life insurance (assuming you want life insurance linked to your mortgage).

It's also no guarantee that you will secure a mortgage offer for that amount - you won't know for sure until you apply.