Are we doing the right thing or over stretching?

[zizu73]

Hi all.

Realise this is 1st world problem but any input would be much appreciated. We are in the process of selling and buying in London. Main push factor is secondary schools but also our current small house and we don't like the area anymore. The new area ticks most fo the boxes.

We would be taking on a large mortgage of £415,000, 5 year fixed with a low rate, with LTV 50 and 25 year term. Mortgage payments will be ca 27% of take home. It's a long term 10+ years house. We are early & mid 40s. Career wise, fairly secure jobs and expecting slight salary increases in the coming years but highly pressurised roles and you never know what might happen with regards to Brexit. Savings/emergency pot of £60k but we might have to use some of it for urgent repairs in the new house (new boiler, re-wiring). Our 12 year old car is also in need of replacement soon and we will try to get a second hand car.

My main worry is that we are over stretching and the fear of a no deal Brexit and its impact on house prices and jobs. I am risk averse so getting cold feet but at the same time realise that living in the right house and location would make a massive difference to our wellbeing. That said, I don't want to have sleepless nights over money worries and want us to enjoy life. Childcare costs should decrease in 5 years time as the kids get older. But we wouldn't manage the mortgage payments on one income.

We could of course try to find a cheaper house in the new area but it feels that for what you get, it wouldn't be worth all the costs and hassle of moving and too much of a compromise.

Any views?

TIA

It sounds like the mortgage would be quite a jump compared to what you're used to? That's probably the main reason you're stressing. Objectively speaking, repayments of 27% of take home pay when you expect pay increases and decreased childcare costs sounds pretty good. Especially that you have a good saving pot.
With the new payments and other living costs, would you be able to carry on saving?
Or to make you more comfortable, are there cheaper houses that you could extend/convert the loft etc? That way you could add value so have the same house in the end but with a smaller mortgage.

So you'll be paying roughly a £2,000 mortgage with £6000 left over each month? And you have 60k savings but need to spend some on the house and some on a new car. Mortgage repayments might go up but childcare costs are likely to come down and salaries should increase to some extent. If I've summarised correctly it sounds perfectly doable to me. You have plenty of equity if prices did drop a bit and you needed to move again. I would want to keep about 40k in savings in case of a redundancy and it might help you to do a monthly budget if you don't already have one.

The figures are all much higher than il used to - £60k savings?! Massive mortgage?! But I imagine you are paid to match. It sounds perfectly feasible. The numbers are huge but as others say you have plenty of equity. I'd go for it.

We recently moved and I felt similarly to yourself...however for quality of life it is worth it. Two weeks post completion and I feel so much lighter (as is my bank balance) but the new house/area etc for us was worth it.

Sounds fine to me OP - low LTV and plenty of savings so low-risk.

Sounds totally doable.

When you say you'll get pay rises - is that guaranteed with Brexit ?

The thing that sticks out is that you won’t be able to afford it on one salary so it’s the risk of losing one that is look at - the rest sounds ok if you both work.

You could think of the savings as cover until cc costs go down.

Very much doable, especially by London standards. I'm a financial adviser & mortgage broker & all my London clients are more highly geared than that. The 5 year fixed rate will give you stability, although probably wont be necessary as rates will stay low for that period of time in any case. Go for it.

Might be an idea to try and overpay during the five years fixed.

Sounds absolutely fine. We are doing that with 10k savings and a joint income of around 130k. Our mortgage payments are 25% of our income and its more than doable.

Thanks all for sharing your views. It's much appreciated.

Jojo Yes the big jump in payments is part of the issue as having difficulties to mentally adjust. We would be able to save a bit if we tighten our belts but it would mean a lifestyle change, at least in the beginning until we adjust. We have considered buying a cheaper house and extending etc. but don't fancy the hassle of major building work and unpredictable costs as have had really bad experience with builders. We might end up keep postponing doing it, putting our lives on hold.

Need Mortgage payments will be £1,700 on a combined income of £6,300. Yes the saving pot should help in case of an emergency/one of us loosing their jobs so would have to make sure not to spend too much from it on repairs/car.

It sounds like you’ve still got plenty spare, if I was in your situation I’d be making sure the house I was being would set me up for many years and if necessary spend more, you certainly seem to have the money for it. I don’t know many people in London who spend so little of their monthly income on housing.

Sounds fine, and a good idea.

Don't think Brexit would have much to do with it as far as the property is concerned, but if you are really in jobs so sensitive to the EU and the UK's relations with it, then it would be best to wait till there is clarity- if ever.

That wouldn't help with wanting good/better schools though.

So you are asking if you can live on £4600 a month after mortgage costs. What do you think will be stretched, your Louis Vuitton bill?

Double Yes its a long term house. We would like to stay there for minimum of 10 years. I didn’t realise that £1700/month was low for London but maybe it is for a family of 4.

It looks as if the consensus is that it should be ok given the high LTV and savings. Many thanks.

£1700 is a lot of money but given family house prices in London, a mortgage of 415k isn't bad at all.

What do you think will be stretched, your Louis Vuitton bill?

🤣🤣🤣
OP, when children were at home, we lived off £2K a month after mortgage payments. With 2 cars, child care, holidays annually etc.

Sounds absolutely fine. I wish we had stretched ourselves a bit more and it sounds pretty safe looking at your numbers.

MyDc

What do you think will be stretched, your Louis Vuitton bill?

You made me smile no Louis Vuitton bags here I am afraid but I appreciate that for an outsider it sounds like a 1st world problem.

I am not worried about being unable to live on £4,600. It's more the worry about the 'ifs' ... if one of loses their job, if one of us gets seriously ill, what if the house prices crush by 20% due to No deal Brexit etc. I appreciate that's why you have savings, insurance and if there is a crash, as long as it's a long term house and you are able to make the payments, it doesn't matter that much if it decreases in value. As I said, I am tend to worry about things and am risk averse.

Also, I think I am a bit worried to take on such a large mortgage in our 40s. We have both very pressurised jobs and the thought of us having to maintain that level of salary for the forceable future, with the pressure that comes with it, is scary. I understand that in life, you need to sacrifice in order to gain something. Without taking any risks, you don't usually make any gains. Nothing is for free. In the end, I appreciate that it's all about priorities in life and each of us have their unique requirements.

Does anybody know if worse come to worse, would we be able to sell the house before the end date of the 5 years fixed term or would we incur massive penalties? The lined up mortgage is portable so might be possible?

Yes you should be able to sell within the five years provided you aren’t in negative equity.

I fully understand the apprehension of a large mortgage in your 40s, but it’s pretty common in London. Vast majority of our friends (mid 40s) still have hefty mortgages.

It depends on your mortgage product. Portability might not be helpful as (I think) you need to borrow at least the same amount and keep the ltv to port.

If the mortgage is so stress-inducing for you, isn't there a slightly cheaper area you could move to? You do seem to be massively uncomfortable with the amounts of money involved and it could lead to even more stress and worry...

Our figures aren't quite on your scale but we are considering borrowing almost the most we can over the longest period we can and I'm so panicked particularly with the inevitable fact that interest rates will rise at some point. I must admit the idea that we will both be working for so long just to pay the mortgage sucks and it's hard to know if the negatives outweigh the benefits. Unlike you guys we have no financial cushions so atleast you have a good sized savings pot. I think if you move you can pay the penalty and borrow from anywhere but if you transfer the mortgage there's no cost to this other than admin was etc, if you don't need such a big mortgage when porting over you just pay the penalty on the difference in amounts.

Thanks for the info regarding selling. At least it doesn’t sound too bad.

Jojo We have researched so many areas, including Surrey and Sussex, for a prolonged period of time and the area we are considering is the only one which feels right, it feel it’s ‘us’ if you know what I mean. Location, house, mix of people. I think I will have to just accept that this is part of living in London and adjust mentally.

Sounds like it's just the price you've got to pay to be where you want to be then.

I didn’t realise that £1700/month was low for London but maybe it is for a family of 4

Rent for a family-sized house is usually more than this. Have a look at rental costs on similar properties in the area - it might make you feel better! People paying rent aren’t acquiring an asset.