How far would you stretch yourself on mortgage payments?

[BigFishFace]

In our ongoing saga to move house into a good school catchment area we have found a house that is at the absolute top of our budget. We could probably get a mortgage for it (and we have a large deposit) but DH is worried our mortgage payments will be a stretch too far.

We’ve been through ALL our expenditure over the last 12 months, including bills, childcare, food and frivolous items like nights out, clothes, presents, weekends away etc. If our spending remains the same we would have about £100 spare each month after the new mortgage payments.

I think this is ok, but DH thinks we should be saving money each month. In an ideal world I agree but I’m prepared to reduce our household spending and have no savings to get a decent house in a good catchment. Am I being stupid?

30% sounds about right, it's your other outgoings that are making this a problem. If you had plenty of rainy day savings to ride out the childcare years I would say go for it, but without that back-up, I don't think I could risk it.

Have you factored in stamp duty, removals, moving in and finding something is broken/needs doing fairly soon. Even little jobs add up

Could you save like crazy so you've got more of a buffer and then compromise by looking for a nice flat in catchment for the school you want? It does sound as if nice house and the good catchment area is going to be too much of a stretch, but perhaps you could save towards having at least one of those things?

We have factored in stamp duty and removals etc. A flat isn’t an option but a cheaper house possibly is. We will have to compromise somewhere and it will probably be a smaller house in the best catchment with a view to moving again after the childcare years.

Our mortgage is 16% joint income, but we have a lot of money extra outgoings. No way would I leave £100 spare. Even £400 isn’t much!

When we did the sums on our situation we reckoned we would struggle going over 20-25% of our combined net income whilst having comfortable wriggle room, but then we have sizeable other expenses.

We would go higher initially if pretty damned sure our income was going to rise.

Have you looked at doing a 5 year fixed rate & lengthening the term to say 30 years? Possibly longer? This would work out cheaper than moving again if you are able to borrow enough. We couldn't afford to borrow enough to get an adequate sized house when we moved into good catchment area, so we have lived in a shoebox for 7 years. Finally moving on now we no longer need them. Funny thing is, my eldest didn't get into the catchment school because there was no space, so ended up in the school with a bad rep. This school worked wonders for her & its communication beat the so-called outstanding school her sister went to hands down. I wish I hadn't been such a catchment snob now, would of saved us so much money!

We were in your situation and we did buy the house. We didn't even have £100 per month left over. However we couldn't have gone smaller (it was small anyway and we bought it with a view to extending when we could afford it) and we knew that financially we'd be better off in 3 years rather than 5 - our income would increase by about 50% so quite a big shift. Also we knew that the value of the house would only go up and it was a forever house. It made no sense to us to pay moving costs / stamp duty twice (which would have been £40k+). We did live in our overdraft and have to take a loan out (can hear MNetters gasping!) to tide us over at one point but knew we could pay it back.

I would 100% move (and stretch myself) for the right catchment area. I think school is so important and it was 100% the right decision for us.

Factor in the £000s you’ll spend in stamp duty, fees, removals etc if you make a move now to a smaller property and then another move to a bigger property in a few years. Personally I’d prefer to stretch myself now and make just 1 move. However as others say, I’d cut back more now to build up a bigger buffer for yourselves.

There's stretching yourself and then there's accounting for nearly every penny. I wouldn't be happy with 100 a month spare. Even if you cut down in frivolous spends you will start to regret it year in rear out.
TBH I'm with your DH on this one.

Decades ago we took out a self-certified mortgage to get a percentage-wise 'large' mortgage when moving from The North to down South. We prioritised paying the mortgage before anything else. How else could we move down South when renting would have been no cheaper?

If you have some sort of contingency plan for unforeseen spends - we foresaw having no cash and became credit card stoozers - then I think its well worth the risk! But we haven't any kids so are slightly less constrained.

How much LTV would the new mortgage be? Worse came to worse you could always sell...

ONLY £100/month left over after frivolous spends sounds massive to me, but I guess it will come down to how comfortable you feel about risk and what you see as risky. Seems lots here think what you're suggesting is risky, I don't.

I would do it. The childcare bills will go down.
100 a month seems fine to me, people here always seem to have tonnes of money but to me 100 spare is fine.

Yes someone up thread said they’d get panicky only having £400 a month spare ?!

Back in the real world... not the lala land of mumsnet, a large proportion of the population could only dream of having a mortgage for a family home and after essentials and frivolities ‘only’ have £100 spare.

So. Out. Of. Touch. With. Reality.

Are you all MPs??

Now is not the right time to be stretching yourselves to buy a property. There is a real risk of a house price downturn, even crash, post Brexit which could potentially leave you with negative equity.

My mortgage is 15 percent of my monthly income.

Definitely try and extend the term to 30, 40 perhaps 50 years, retiring is so over rated anyway.

Could you also see if your lender could do an inter-generational mortgage that you could pass on to your kids perhaps?

It depends. If there is a big ticket item like a £7,000 holiday that you could quite reasonably cut back for a few years, then maybe.
But unless both of you are really committed to it, probably not.

I would stretch and do it. It sounds like you’ve thought it through. We have always stretched for a new house and money eases up after a while (wage increase, kids get older so childcare reduces, etc). Good luck :)

Our mortgage is 12% of joint monthly income and including all household bills (except food and childcare) it’s 30%.

Childcare is another 30%

I wouldn’t be comfortable with £100 buffer but it depends on the standard of living. For example at present we spend £100 ish weekly on food however if things were tight we could reduce this significantly. We run two cars and have multiple holidays which again could be reduced.

I’ve lived with no buffer and it’s not fun and (lack of) money takes over everything.

Wow, our financial situation is a LOT worse than most on here.

We spend a sensible-ish proportion of income on the mortgage (25%) but bills and living expenses for a family of five eat everything else up - we have nothing at all left after paying for essentials plus kids clubs/clothing/(camping) holiday savings etc etc. Yes we'd love to be saving, and yes we'd be screwed if something major happened, but we've taken the gamble and three years later have £10k more equity that we could withdraw for building repairs. we don't have savings for if one of us was suddenly unable to work long term, but I'd hazard a guess that an awful lot of homeowners don't. We couldn't downsize (2 bed house for five of us already) or move, due to DH's work.

we don't have savings for if one of us was suddenly unable to work long term, but I'd hazard a guess that an awful lot of homeowners don't.

I agree lots of people don't but then you have to decide whether the big house and mortgage is worth the gamble. That's why the OP has to consider how risky their job or jobs are and whether they have insurance or not because the obvious risk is losing that house and awful upheaval for everyone if something major was to happen as it sounds like they have very little buffer for even smallish things for the next 5 years.

If they deem stretching themselves to be worth the risk then at least they go into it with their eyes open to that possibility. No one knows what round the corner but equally not to consider what ifs when taking major financial commitments is sensible.

Don't do it. We ruled with our heart instead of our heads and bought a house on top of our budget. The mortgage repayments were the same as we paid for rent and we have savings BUT we had some big problems with the new house that needed us to fork out £10k that zapped ourr savings. We are back to where we are two years later (and after several other things cropped up) and we can't afford to do the house up yet as we want to have a cushion. It's best not to stretch yourself so you can still sleep at night. Also, we don't have children to think about. I wouldn't do it if I was you.

Surely you don't pass the mortgage stress test if your total outgoings leave £100 a month? Rates are currently low, but your ability to repay at higher interest is checked and 100 quid a month is unlikely to cover that?

Personally, I think large swathes of the country are at about the peak price they are going to get to, and it's a bad time to up-size if it stretches you, especially on loan to value ratios of the mortgage.

If you push the loan to value ratio on a cheap short term fix, by the time you need a remortgage, you'll have paid off very little capital, and any decline in value places you at risk of being unable to secure a decent remortgage as you will slip under the qualifying loan to value criteria. If you bought a £350k house with 15% equity today, you could get a 2 year fix at around £1200 a month, but if you cannot remortgage after 2 years because your equity has been substantially cut by a slump in values, that would put you on about £1,650 a month at the current standard variable rate. Most people don't have a spare £450 a month lying around.

Even small moves in the market impact people who have pushed it. I have a friend who bought in London on a 2 year fix and had to face a less drastic but still stressful situation of the property being down-valued last year (London market has been slowly sliding), choice was either to sink £12k of savings into the property to restore the loan to value ratio for a cheap mortgage, or pay another £200 a month over the next 2 year fix.

If you aren't pushing it on loan to value ratios and have a decent buffer of equity, it's much less risky, but the ability to pay at higher interest rates 2-5 years down the line and a decent cash buffer are still important. IMHO, it is a time for caution.

Remember that lots of people on here and in your life (perhaps parents or older friends) bought when the market was rising and interest rates stayed low.
For them, stretching on a mortgage was a winner. Lots of people now consider themselves successful investors when they were in fact lucky gamblers. The danger is that they then advise others to do the same.
In today's market, with falling or stagnant house prices and interest rate rises coming up, it's more likely to be the same situation as FrankieChips above.

Really interested in responses to this thread, as it raises questions we have at the moment about buying an OK house with cash or good house at the top of our affordability range. Helpful to see that many feel that current economic circumstances actually mean it's better not to overstretch. I'm planning to do a budget to see what would happen if we borrowed our max.
What percentage mortgage interest do you think one should be able to afford up to? Ie. Current lending may be low at 1-2%, but could it feasibly get to 7%?