Am I just dreaming?! Getting a 5.5 mortgage

[Keepgoing88]

We have seen our dream home, however it would mean getting a mortgage which almost 5.5 our 70k salary. If it helps we have £400,000 deposit as we have made money from property. Is it ever going to happen? Planning on speaking to a broker but have a feeling the answer could be no.

'The bottom line is if you pass the affordability checks and have a high deposit they don’t give a shit if you default, they are pretty much guaranteed to get their money back if they repossess and go to market.'

That doesn't mean it's a good idea for the OP to borrow what she is able. The banks and government seem determined to get people into more and more debt.

@gorillasinthemist

'The bottom line is if you pass the affordability checks and have a high deposit they don’t give a shit if you default, they are pretty much guaranteed to get their money back if they repossess and go to market.'

That doesn't mean it's a good idea for the OP to borrow what she is able. The banks and government seem determined to get people into more and more debt.

I didn’t say it was a good idea. Or a bad idea. She’s not explained her other expenses, expected salary progresssuin so none of us know if it’s a good or bad idea.

@Paddingtonthebear

You need a £400k mortgage and you have a £400k deposit?

I think that's right. Is it? So you can pay half the cost of the house yourself?

Surely you figure out your maximum outgoings you can afford and work out your top budget that way.

Will the house cost extra to run is also a consideration.

Have you viewed this house in person?

I would not want to do it.

Have you factored in the massive council tax bill you will be facing for a property priced at that level? Plus all the increased bills and maintenance etc.

We were offered much larger mortgages than we wanted but I dread to think what would have happened if we'd maxxed ourselves out as we're still able to have treats and holidays etc this way and we wouldn't have been with bigger repayments.

Opposite opinion here - my financial advisor told me to absolutely max myself out when I bought my first house. Depending on circumstances, I think it can be good advice. We are very glad we did so now, but we have been through an extremely tight few years and didn't even paint some of the rooms when we moved in to save money. We also put down a large deposit (not as much as OP though!) - if something goes wrong you can't risk getting trapped in negative equity and who knows what will happen with the markets.
In the long run though, housing is only going to go up. Maybe not this year, or next year, but if you plan on being in that house in ten or twenty years time, it will be worth more. Also if you move to the dream house in steps you can lose a lot of money in stamp duty and solicitors and estate agents and other moving costs, plus stress and hassle.
Have you a realistic plan, beyond borrowing the money to get the house, for how you will pay it off, and stress tested it against a possible rates rise? You can mitigate that for maybe five years max by getting a fixed rates deal but not for the life of the mortgage. I assume you're looking at a 30 year loan? Obviously you don't owe me answers, but think about how old you will be then in relation to when you want to retire, your pension contributions, any other debt you have, your children, any cost of childcare, any saving you do for them (uni? deposits for them?), your future career growth or hopes to go part time, any future kids or maternity leave - if all needs to be factored in. Would you plan to get the longest loan you can then overpay?
Good luck whatever you decide. It could be a dream but only if you do your homework first!

@CroydianSlip
Council tax bill isn't necessarily massive just because it's a high value house depends where you are in the country.
We sold a relatives house in london (Barnet ) for £2million (to go into care) and their CT band H bill was quite a bit smaller than our northern band F house bill for a house that cost a quarter of the value even though both are 5bed properties.

@Hollywhiskey I think that's one thing when you are really pushing yourself to get to a long term home so not needing to move again soon or pay fees for upsizing etc, we made the mistake of not pushing ourselves enough and ended up needing to move quickly before making much equity, but to do it when you already have a sizeable deposit when (depending on area) it seems very likely they will be able to buy a very nice house (and still make a sizeable investment) for say around £500-600,000, that pushing themselves to £800,000 seems a somewhat unnecessary risk, though I know we have very limited information.

Thanks for all comments. We have a 180000 mortgage left on a house worth 600000 so I think We have about 400000 equity. I am 36 and DH is 40.

@Keepgoing88 are you in a very expensive area? What does the dream home give you that the £600k house doesn't?

A bigger garden, better school catchment... that’s it really

Ahh so I’m not sure I would borrow so much only for those reasons. We kept the same great school catchment but got more than twice the house and a huge garden. That trade off has been worth it. But I don’t think I would have wanted my old house in a better area for an extra £200k

Go for it and just adjust your outgoings if you're concerned.

I always take on a large mortgage because after a few years, salary increases, property price goes up etc it dwarfs. You likely understand that given your current 180k mortgage against the 600k house. That seems like nothing now, probably!!

And the Large Mortgage Diet does wonders for your figure ;p

@kickergoes

I know it's not what you asked and I'm being one of those annoying people missing the point, but that's a huge mortgage for that salary, have you thought about if interest rates go up? Where are you in your career and family trajectories? You're in a hugely enviable position of having a fantastic deposit, you must still be able to get something special much more affordable?

I would second this. I think the answer really is to be very strict with Rightmove searches and just not look at things above what you can afford.

What is happening with mortgages now is really not wise IMO, we are back to 95% mortgages and high slary multiples. This is all hunkydory... until it goes tits up.

However having seen how much equity you have, you will not end up in negative equity (well, if you do we are nationally completely fucked anyway!!) so it probably doesn't apply to your circs.

However having seen how much equity you have, you will not end up in negative equity (well, if you do we are nationally completely fucked anyway!!) so it probably doesn't apply to your circs.

Their equity is excellent, but salary modest compared to the mortgage amount, so they would feel an interest rate rise greatly, I imagine.

I wonder if Habito might do it? I think because they fix rates for the entire mortgage they can lend higher salary multiples (you'll need to check). I've a feeling that brokers will not recommend them (brokers want to keep getting their repeat remortage fees!). Perenna should be entering the lifetime fixed rate market later this year too. Good luck.
www.habito.com/one

@Didyousaysomethingdarling oh wow how interesting, I will have to look into that, love the idea of a forever fix!

Do you think you need to offer asking price for the place you’re interested in? Have you sold your place?

I would go for the more expensive house. But then be super frugal for a couple of years and really try to overpay. I try and look at things like this - you don't need to buy a house with the ultimate goal of paying it off. Buy the bigger house or the better area and if you can't pay it all off at least you have enjoyed living in it and you can always downsize later. The gap between different value houses just grows and grows. For context we sold our old house for £400k and bought this one for £570k. Our old house is now worth £600 but this one is worth £1m. We have done very little work to it. We wouldn't be able to now afford our current home had we not moved when we did.

OP, how much have you calculated your monthly payments will be?

What is your net monthly income for the 2 of you?

Think about these issues as well as what you can actually borrow. You will have to live AND pay the massive mortgage. Do the numbers stack up? Does it give you any slack for one of you not working or working less at some point? Is there slack for if interest rates rise?

Can you give us the figures for how much you think your monthly mortgage payments will be and what your net income is per month after you’ve paid taxes and hopefully paid your pension contributions.

How little do you think you can live on per month for everything else? How much spare do you feel you need to keep as a buffer for emergencies such as boiler breakdown or expensive repair of car? Tell us some more numbers and we can help you see if it’s viable. It’s not just about what they will lend...often you can borrow and it’s then not affordable and that’s where repossessions happen.

Is it better to start from how much you can afford monthly on a mortgage and then to look at properties you could get with that size mortgage and your equity...it start from a potion of affordability not what you can borrow in a daft world.

It’s true, mortgage companies will sometimes lend more than you can afford if you’re equity means they will get the money back if they have to repossess. It is a money-making venture for them. They would certainly rather not repossess as it takes time and effort and cost, but ultimately if you have plenty of equity they probably won’t be out of pocket which is why they will lend beyond what you can afford. Focus on affordability. It’s the most important thing. You can still stretch yourself on that...but it’s daft to borrow so much you can’t afford to live as every penny is going on the mortgage.

So how much do you pay now ? Will it be £1900 total or that plus what you are paying for the £180,000? ... £1900 a month for a £1m house is a bargain surely?

When we bought the bank didn’t bother reviewing affordability as they know they’ll recoup their money if we default. So my point is, even if the bank gives you the offer, definitely think about your own affordability and assess job security and potential salary growth too.

It would be very miserable to count pennies or not be able to run the house properly or not be able to enjoy treats/holidays etc if your finances are put under pressure. So do a lot of budget forecasting before making the decision.

I agree with @Paddingtonthebear. My mortgage availability was based on monthly income less fixed outgoings. Not a salary multiplier.

Should have added on that, that they were willing to lend far more than I am personally comfortable with. I don’t have DC & low fixed outgoings (no loans / cards). My max ceiling when looking is £40k less than what they would lend me.