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?

I'd stretch. Your salaries are likely to increase more than your mortgage costs over the years.

Your salaries are likely to increase more than your mortgage costs over the years.

That really depends on what jobs they have. In some industries wages are quite stagnant. Whilst that may be true for some jobs you can't assume that everyone's wage will increase year on year plus today's job markets can be quite volatile. Without knowing OP and her DH industry you don't know that is the case.

Really interesting responses. Thanks everyone. In our case, yes, our salaries probably will rise over the next few years. Although I guess in the current climate no one can guarantee this.

The point about falling house prices (and subsequent impact on LTV when remortgageing) and raising interest rates is interesting. However, if house prices crash that significantly would the BoE not aim to keep interest rates low?

Stuckforthefourthtime talks sense. MIL told us to stretch ourselves when buying 8 years ago when I was going off on mat leave.

We didn't as I'm risk averse. But we saved really well and paid chunks off the mortgage while having long haul visits home regularly.

We sold earlier this year and have bought mortgage free. Buy smart, which isn't always stretching yourself.

As for interest rates rising - well if you've a fixed rate now then that will cover you for 2/3/5 years. But as to how much they rise, well I remember my first house in the mid-80s and double figure interest rates!

As well as being an investment the property is your home.

As for interest rates rising - well if you've a fixed rate now then that will cover you for 2/3/5 years. But as to how much they rise, well I remember my first house in the mid-80s and double figure interest rates!

Sure, but house prices were also rising. The issue would be if interest rates rose as house prices decline. My question is whether the BoE would keep interest rates low if house prices fall/crash?

I agree that the property is to be a home. But we must be able to afford to live in it!

My question is whether the BoE would keep interest rates low if house prices fall/crash

No one can say that as interest rates are affected by lots of things.

Ours is about 20% of our income and this is fine for us.
In your situation I would go for it. Your situation will dramatically change in 5 years time when the massive childcare bill reduces. You could live frugally (ish) for the next five years. Your wages may also go up in this time?
Or you could wait until 5 years time. But you seem very unhappy in your current situation. I would go for it but understand other people's point of view on this thread.

Go for it. The mortgage isn’t such a massive one in relation to your earnings- the issue is your current very high childcare expenses. And you know those will decrease. The wraparound care for school age kids will see like nothing compared to all day care for preschoolers. Also your salaries are likely to rise. Plus there will come a point when the kids don’t even need the wraparound care (you’ll feel like you’ve won the lottery then!)

If it weren’t for your childcare bills I’d be thinking along the lines of you taking on too much but 30% of your joint income is fine, you’re just being hammered on childcare at the moment.

Having a house that you’re comfortable in, in the right location is pretty key to most people’s well being so I would say stretch yourselves now because this is a good decision for the long term

Gosh £100 really isn't much. Could you cut back elsewhere? Ie shop at Aldi, cancel sky etc?
If you're willing to do that until your childcare costs go, that might work. However, teenagers are expensive!
I liked someone's idea about extending the term.

However, despite the above it does sound like you can't afford it. Money stress is horrible and no way to live. I've been there when I lived alone. Having £10 to last you two weeks is no fun.
We now look like we have it easy but this has taken years to get to and both working full time with stressful careers.
Our mortgage is about 1/6th of our income. To me, living and enjoying family time is priceless. We can have a meal out or go on holiday and we can afford it.

When my parents first got together many decades ago they saved my mother's salary for a year to see if they could afford me! Why don't you go without the extras for six months to get an idea of how you would cope if mortgage payments went up or you had unexpected expenses. There would be no way I would be upsizing in the current climate with only 3K in the bank and no real surplus left each month. At times our house had made more than us each month - those days are gone.

Personally I think it’s the wrong time to stretch yourself. A potential rise in interest rates put me off moving as it wouldn’t have been a long term move plus prices where I am having started to fall to 2011/2012 prices so the days of making lots of money are gone for most imo.

I guess it's a toss up between the risk of buying something cheaper to live in for a few years that can be comfortably afforded VS overstretching for a 'forever' home.

Hard to say whether potential falling house prices and rising interest rates would be less of a gamble than the costs of needing to move again in a few years.

Wrong point in the cycle to stretch yourself.

I would do it, if the house is perfect for you. You can rein in most of the "frivolous" spending - probably more than you think, if you take it seriously. You shouldn't be looking to save if you have a large mortgage anyway (especially with such low savings rates.) If you have "spare" money each month then it would be better used to reduce the mortgage.

When I bought my first house, my every penny went into mortgage payments. I didn't have anything spare and I lived extremely frugally for several years.

I doubt very much any mortgage company will give you a mortgage based on those calculations. After the "sub-prime" crash, which was partly caused by people over-extending themselves, the mortgage companies have massively tightened up what they are prepared to lend.

They want to see outgoings, income and bank statement evidence to support it all.

You might find this helpful: www.moneysavingexpert.com/mortgages/how-much-can-i-borrow/

Hang on, hang on, hang on. ALL expenditure includes food, bills, clothes, nights out, presents, etc...so perfectly amenable to belt-tightening. The childcare is obviously the killer element here. But can you give us an idea of your actual disposable income after childcare and housing costs? Most people don't squirrel away £400 a month after comfortably covering all expenditure. They really don't.

Our mortgage payments were 42% of DHs net pay at one point, and until the kids were old enough for me to work again things were very tight. It was miserable. As mentioned above its the repairs and replacements of big items, birthdays and Christmas that are hard.

We've just bought again in a good catchment, but have bought a house that is sound, but not pretty. I've got some ugly bathrooms and a lot of room makeovers to do as and when I can afford. We were worried about overstretching in the current climate, even stuff like grocery shopping are unpredictable pricewisr until this Brexit mess is sorted. We've just fixed for 10 years mortgage wise. I might still be looking at ugly bathrooms in 10 years but I'm in the right catchment for the kids now.

Personally I think buy smart. Good catchment area is a. I brainer so go for it, perhaps buy a smaller home though so you're less stretched as 100 per month to pay for things like repairs, holidays, hikes in bills etc isn't good unless you know you'll be earning more in the short term or you cut those corners and make sure you're using your finances smartly too

What are rental prices like? Could you rent for a while in the better area whilst renting out your place until you are ready to sell?

We would pass the stress test at this point as our calculations include future bills that will begin the next few months (extra childcare etc) that the lender wouldn’t know about just yet.

Our calculations do include ALL our spending even down to the random twix and can of Coke I bought on the way home the other day.

I would be surprised if most people saved £100-400 a a month. That’s £1200- £4800 a year. Do people do that? Or do people just live within their means?

@tiddletaddletat in my mortgage paying lifetime I've seen the rates get to 10.5% from a low of 3.5% just three years earlier. That was in the Labour Blair years so about 15 years ago..
Not that long really!!

Forgot to add, to put that in perspective our mortgage doubled during that time. Thank God it was tiny in the first place.

The thing is, a hell of a lot of people couldn't afford their homes if the interest rates went up, and they will, just look at history....

However, if house prices crash that significantly would the BoE not aim to keep interest rates low?

Interest rates are usually cut during recession and raised during periods of high growth to prevent inflation. As we've had neither high growth or recession for the past few years, it could be argued that all bets are off as to where they go next, but they are unlikely to reach anything like previous highs for a long time. If Brexit is safely delivered and markets pass a favourable judgement, rates are likely to go up, but most economists seem to expect a global recession of some sort to start in late 2019/2020, which could well pull them down again.

When considering interest rates in relation to your mortgage, remember that the BoE does not just set the base rate, it also manipulates consumer interest rates, so both need to be factored in.

If you imagine that your mortgage was only a 1 year loan, and you had the cheapest rate on the market, which is currently about 1%, with inflation at around 2.7%, the real interest rate of your mortgage is -1.7%. It is literally free money! It's only BoE largesse that makes this possible - they have been swapping bank assets like mortgage securities for ultra cheap credit. You couldn't get a 1%-2% mortgage a few years ago when the banks were having to raise funds through selling securities on the open market.

Banks do not expect this bonanza to last forever - in fact, the BoE Term Funding scheme has already been withdrawn, nor do they expect the base rate to stay

Waaaaay too tight. Mortgage can only rise and you'll be truly stuffed. Look at your payments at 4,5,6%