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Original poster

London Mortgage - are we crazy?

136 replies

EllaWt · 20/09/2019 08:33

Hello,
I realise this will seem outrageous to some of you but I could really need your wise advice.

DH and I are about to buy our first flat. We live in London and despite Brexit and all , it's still really expensive.

We both have good jobs and a joint income just short of £300k/year . We also both have good earning potential in our jobs. We're young-ish too being both 32. No kids but hopefully soon.

We're about to buy a flat for £1.2m with 15% deposit and have secured a good rate.

Part of me is excited but part of me think we're mad to take on an approx £1m mortgage. The flat itself is in a very special and desirable location and can be turned into a gem with a little TLC

Doing all the maths, it's do-able on a monthly expenses basis and we're pretty much wiping out our savings.

If all goes well, we should definitely be more comfortable in a year or two once we'd had bonuses etc... but it's still so much money and risk to take on

I really don't know if we're doing the right thing or just being overly optimistic, silly and overstretching ourselves.

Our parents are not in the UK and we have no one to give us advice really. Has anyone here done something similar ? Does this all sound crazy to you ? or do you think it's fine?

Thank you SO much

OP posts:
JoJoSM2 · 20/09/2019 09:08

I think we’re at the other end of the spectrum lol We’re in London too and when we bought our first property together we had income in a similar ballpark but spent under 500k on a house. We’ve always prioritised investments and financial security.

Admittedly, we have got progressively more greedy and now live in a massive house (cinema room, gym etc) but we’re in a cheap part of London so the value of it isn’t dissimilar to the flat you’re looking at (income much higher these days so we’re still super cautious).

One thing I would say, though, is to do your math. Rental yields in prime London are rubbish and you mind find that renting a similar property costs the same as the interest on your potential mortgage. The prices aren’t going anywhere, so I’d question whether it makes sense to buy. I’d probably wait until you’re ready to settle down and move to a family area (unless you don’t plan on having a family).

Meshy23 · 20/09/2019 09:10

If it’s doable on a monthly basis and you can still save and live as you would like to for the full term of the loan (25 years plus) then it may be ok. Interest rates are at an all time low though and the only way for them to go is up. Also childcare is very expensive in London.

We are also professionals in London and for our next house I would be reluctant to go anywhere near as high for the reasons set out above. But only you can decide depending on the lifestyle you want and your future job security.

eeksville · 20/09/2019 09:18

If you decide to buy I would go for a house as opposed to a flat & close to good schools so if children do come along you don't have to move & pay another load of stamp duty. If you do have to move again in another 3 yrs you may find you don't make any money on your purchase. Or do as @JoJoSM2 suggests & rent until you have s family & your lifestyle changes.

DameSylvieKrin · 20/09/2019 09:19

If they give you the mortgage I guess they judge you capable of paying it.

I wouldn’t do it in this unpredictable economic climate. I’d rather look back on a lost opportunity than be trapped in negative equity.
If your jobs are in anyway linked to the financial sector, it’s an even bigger risk.
Can you get insurance against unemployment at least?

Original poster
EllaWt · 20/09/2019 09:46

Thanks all! It does seem risky indeed and we love the house which makes seem harder
I think there is a part of us that has confidence it'll all be fine and in a couple of years we'll look back on it and decide we were right to take this risk... naive I know

OP posts:
JoJoSM2 · 20/09/2019 10:01

So is it a flat or a house?

It isn’t necessarily that risky. Only it will limit your actual investment options. If you have a child, you’ll probably find yourself spending about 4k/month on a nanny and associated costs. If it’s a flat, then you might find it’s sucky you don’t get a proper garden or space to store buggies, scooters, bikes etc.
Not sure if you’ve thought it through if you’d like kids soon.

Original poster
EllaWt · 20/09/2019 10:04

Sorry i should have been clearer - it's a house. Seconds from a park , in a very prime area. Small garden but pretty nice

OP posts:
HotChoc10 · 20/09/2019 10:10

It’s about 3.3 times your combined income then? It’s a lot of money but that doesn’t seem so bad as a ratio. Not going to lie, I want to see a link so I can offer my expert opinion on whether it’s worth it.

EssentialHummus · 20/09/2019 10:16

I’d make sure you can live on what you have left each month, that it’s owned in such a way that your ownership is accounted for if you split, and that it’s future proof wrt bedrooms, schools etc. Then go for it!

JoJoSM2 · 20/09/2019 10:29

It being a house makes it much better suited to family life than a flat. Massive brownie points for being close to a park and having a garden (if it’s big enough for a slide/trampoline etc - kids can spend hours outside but you might like to be at home instead of being in the park all the time).

The other thing I’d look at from a family perspective is affording childcare so the aforementioned 4k/month on a nanny. Nurseries in prime areas are often 2.5k/month per child and you might find them sitting in a dingy basement for 10h/day. Or you might like to go part time or stay at home but that’s a loss of earnings scenario.
I’d also look at schools. If state, then you need to be in a good catchment (can be quite small). Prep schools in prime London often set you back 20k/year and you still need a nanny for after school + about 17 weeks’ holiday every year.

eeksville · 20/09/2019 10:36

Defo check your distance from the local schools. You can see the furthest offer on the councils website, my schools furthest offer was about 250 meters & I know of some people who paid 1.2m for a terrace & then didn't get in, even though they were on the same road as the school.

Original poster
EllaWt · 20/09/2019 10:42

I think our future kids will be going to french school- location is pretty much halfway between our jobs in the city and the french school. The english system is so confusing and elitist phew

OP posts:
eeksville · 20/09/2019 10:44

well that's one box ticked

CassianAndor · 20/09/2019 10:45

I would get MN to edit your OP saying it's a house not a flat, as that changes things dramatically, a house is far more future-proof. Though personally I think families need a decent sized garden, though I think I'm in the minority thinking that, looking and the tiny gardens many friends have, for their 3 kids...

The2Ateam · 20/09/2019 10:50

Regardless of the size of your incomes and the size of the loan your taking out, the maths and calculation’s are the same for everyone. Can you afford this property? Can you live on what is left after all your outgoings?

I’ve brought and sold three times in London. Each time there has been something: House price spike, crash, Brexit. It’s made no difference to me and my life. I’m not an investor, just a normal person moving up the property ladder. If you love the property and you really can afford it, there’s no issue really.

Original poster
EllaWt · 20/09/2019 10:53

Trying to edit to say it is a maisonette not a flat ! Thanks all for your thoughts you have no idea how valuable this is

OP posts:
eeksville · 20/09/2019 10:53

We have a small garden (with a slide & a trampoline) & a common at the end of the road. I've never been too fussed about a big garden, my parents one is probably 4 times the size of mine (not big but biggish for the area) & there's not much my dc's can't do in ours that I did except have more space to run & cycle but then we have the common for that. My parents are local & the common is at the end of their road too & we also used it for running/cycling as kids as opposed to staying in the garden.

CassianAndor · 20/09/2019 11:17

ah, right. So not a house.

That's a lot of money for not-a-house. Not future-proof. And I'm a Londoner.

luckygreeneyes · 20/09/2019 11:21

It depends on your other outgoings. At that level stamp duty will also be £££ so and expensive mistake to make if you decide to move. Child care costs? School fees? One nursery place is easily £1-1.5k a month.

We have a similar income but bought at around £550k even though the bank were happy to lend £1m and there have been a number of times we’ve discussed how glad we are that we didn’t overstretch

RJnomore1 · 20/09/2019 11:33

I don’t think the amounts matter as much as the gearing; around 3.5x joint salary and no savings left means no wiggle room at all if anything changes and a 90% mortgage means a high risk of negative equity I would say.

I’m in Scotland where everything is cheaper including salaries but I wouldn’t touch a mortgage that came to 3.5x our joint salaries with so little equity in the property.

Then again fortune favours the brave so if you think you can do it go for it. I can be quite risk averse.

RJnomore1 · 20/09/2019 11:34

Ah sorry 85% mortgage - slightly less scary somehow.

Alexalee · 20/09/2019 12:48

1.2m London flat right now... 100% no... unless it was worth around 2m in 2014

DameSylvieKrin · 20/09/2019 12:49

Also with the school fees you’re assuming you will both always be in work and at the salaries you have now.
If you work in the City, I think you’re very optimistic to assume that.

Oliversmumsarmy · 20/09/2019 13:01

For that money and wanting children wouldn't you be better to go to somewhere you can have an easy commute and get a house.

Depending where you need to get to and just a half hour commute in I think you could get a more future proof home.

Meshy23 · 20/09/2019 13:02

Why a flat/maisonette rather than a house? With a freehold house you have room to extend, a garden, and just generally more space. With a maisonette you are hopeful that your neighbours on top or below won’t make noise and there is little room to extend. If a leasehold you will have a limited term on your lease and you may have service charges. £1.25m for a house may be fine but for a flat - I wouldn’t. Also as PP said - being a new mum, maternity pay can be dire and childcare costs are an absolute minimum of £1.5k per child wherever you are in London.