Getting cold feet after property accepted. How much is too much mortgage?

[anaym]

Hi

We’ve just had an offer accepted on a dream house for £990,000 with a deposit of £200,000.

DH makes £130,000 and I make £90,000 which nets us £8000 monthly after taxes.

We are now very comfortable as we live in a 2 bed flat with a £1,600 mortgage without children, as we have been working from home we decided to buy a house and got the £990k offer accepted which means we will have a £3,100 mortgage to pay off.

We can do that now but are scared that when kids come and I have to stop working our new net of £5500 won’t be enough for family and house.

Should we consider a cheaper property even though is not our dream house and we would have to move further away?

Thanks for your wise words and advice in advance!

I didn't think you could get interest only mortgages any
More ?

@TeenTitan007

You'll be fine. After the first fixed term (assuming 5 year fixed) your LTV will be much better (due to higher increase in your house value + repayments over 5 years). This means you can get even better mortgage products then (or in the worst case scenario if rates increase then you'll be where you are now). Totally do-able. Think of it as your retirement investment which is going to sell for a much higher price and fund your retirement. Don't think of repaying the 'whole' mortgage, there is really no need. You repay only until you sell and downsize. And if it's a smart investment then the value increase/equity will pay for your next home outright.

You have just put in words how I feel about it. It’s just a very scary leap! We are not even thinking about full payment as we plan to retire in Spain where DH is from

Wow. It's a lot I'd say. When we bought our house our income was £6000-8000 pm. Our mortgage is £1900pm obviously we could easily afford it. Now our income is more like £4500 (thanks covid but grateful to still have an income!) we have 3 kids. We are comfortable but def a different lifestyle than before.

I was around in the early 1990's when the internet rate went up to 15%. Be careful to factor possible rises into your calculations OP or get a very long term fixed rate

@huuuuunnnndderrricks

I didn't think you could get interest only mortgages any More ?

They are not particularly well promoted, but you can still get them from most of the main mortgage providers, usually (based on my -limited - but recent experience) at the same rate as the repayment option. There are just stricter limits than there used to be - income needs to be above a certain level (the OP's is definitely above that level) and max LTV is lower (although you can get part-and-part IO if you are borrowing above that threshold). You also have to have a "plan" in place to repay the capital at the end of the term, which can (for some lenders) be downsizing

It's difficult to comment just on the basis of the information you have here. It'd be really useful to know more about your situation if you don't mind sharing it e.g. Do you have other property/investments? How are your pensions? How old are you? How secure are the careers? Is there likely to be high wage growth in the near future? Does he (or you) have any other children that he's responsible for?

On the face of it it seems a lot of pressure for a 44 year old to take on esp if you are planning on the possibility that he might be bringing in the sole income. A lot of people find they can't/don't want to sustain a high pressure job into their late 60s. If the plan is that it will be the home for your children then it might be very difficult for you to downsize and move to a cheaper area once they are established in school. If you have other property you can sell if it becomes a problem, or you have huge pensions that could sustain the mortgage if he retires earlier then I'd be more comfortable. On the basis of what you have written so far I would have concerns.

@HmmmmmmInteresting

Yes, it's long but we would rather be overpaying on a longer mortgage than having higher monthly repayments fixed.

This is true

This is what I would choose as well.

To be honest it may be a stretch. I am thinking back to when we first got our house, our payments and salary at the time, albeit we had one DC in FT nursery.

Will your salaries increase? By how much per annum?
How solid are the companies you work for / your roles?
How good are the parental leave packages?
How much is childcare where you are?

It’s easy to want to scale up and “live the housing dream” but it’s such a sunk amount of money. Having savings, pension and emergency fund etc is important as well as knowing you can afford holidays / trips out

I think this is ok, and I would go for it. Worst case scenario you have to sell the house and move to a different (cheaper) area.
But do consider the lender you go with and their lending multiples (e.g. some use 5-5.5x multiples on higher incomes which may come in handy when your fixed rate finishes and you have to remortgage, if you have a fixed rate).
Pre-kids you can make significant overpayments to reduce your interest long term and this will help when you remortgage in future. May not be possible once kids come along!
If your husbands salary is a secure base pay, in a secure industry and likely to increase in the next few years then I don't think life will be too much of a struggle.

P.S. those PPs thinking back to their own situations and mortgage:salary ratios likely bought properties in London 15+yrs ago and so the concept of a £3k pcm mortgage to buy a small house is totally alien!

When I moved into my second home my DH took home 3k a month and our mortgage was £1550 per month. That was 22 years ago. We took a gamble that his salary would increase and it did.

@SwimBaby

When I moved into my second home my DH took home 3k a month and our mortgage was £1550 per month. That was 22 years ago. We took a gamble that his salary would increase and it did.

But was he 44? Doing that in your, say, early 30s where your probably accelerating in your career and don’t have the pressure of planning to have teens plus a big mortgage in your mid 60s

You’re accelerating! Argh talking to children and posting doesn’t mix!

Mia85 good point, he was 33 and we already had 3 DC.

You need to find out how much you would be loaned taking into account your part time wage and child care costs for the number of children you would like to have. Once you know that, then only borrow that amount.

My dh is 44, I'm late 30's and not a chance in hell he'd take on that mortgage. our salaries are lower than yours, but even comparatively. We moved to a cheaper part of uk recently (from a very expensive part to be near family and have a better lifestyle) so are lucky to be mortgage free. The thought of a 25 year mortgage to that amount would scare the shit out of me. Do you need a house that size/ expensive?

Depends on what your priorities are/lifestyle is like. I wouldn’t do it. We are mid thirties, similar salaries but decided to buy somewhere where he had a 50% deposit before kids. It gave us options. Don’t underestimate the importance of that. I took 2 years out with kids. Didn’t make any difference to our lifestyles as our monthly mortgage payments were a low % of our monthly income. Kids are in private school as we didn’t like the state options near us. Again no sweat about fees as large monthly disposable income. We sleep great at night. Have big investment portfolios from savings and we could “retire” at 55 and travel the world if we wanted with big deposits for kids houses. Elderly parent/child becomes ill, no problem we can cut back work and look after them. Mortgage interest rates rise, again no problem. But £400k won’t buy you much in SW19…

Just don’t give up work, makes no financial sense on your salary. Kids will go to nursery then school before you know it. Really it’s a £790K mortgage. Loads where I live do it and manage. If it’s a dream house and you can see yourselves there for 20 years I would

That monthly take home is low for the combined salary so there must be money going elsewhere.

Our monthly take home is v similar (on a much lower combined salary) and our mortgage is about 350k (on a house worth just under a million).

We’re mid 40s and don’t want to increase it to more than that. We pay around £1,650 p/m and that feels enough!

We have just less than £1000 after paying the mortgage and we do just fine (family of 4: kids are primary school age). We have no debt (besides the mortgage) and save up for things that we want. Admittedly we don't go abroad or have big holidays (we manage a couple of long weekends a year) , DH's car is 10 years old and mine is 7. We live frugally but we're happy.
If you choose to give up work, you may need to make some cutbacks if you're used to a fancy lifestyle, but you absolutely can live off that kind of money. If you'd rather have (for example) expensive holidays and flashy new cars then yes, a smaller house would give you more disposable income.

A mortgage of £790K on a £220K income is just over 3.5x income ratio. That should be entirely doable if you work to a proper budget, agree spending priorities and ensure there is a large emergency fund in case of either losing a job, or to pay for periods of unpaid maternity leave. Or borrow less now and buy something based on a part tine salary for post children.

When I bought 13+ years ago in my early 40's, the mortgage was 5.2x my then salary, I borrowed £260K on a £50K salary. Didn't have a partner to help out and was in a fixed term contract job. It felt hugely scary at the time but it's been fine. Although my salary has increased it has also varied a lot from one year to the next, as I've had gaps between jobs with no income and 2 career breaks of 3-6 months each. During those times I cut back on discretionary spending. However I've never felt my lifestyle was compromised and lived well, saved and had some massive holidays for 'big' birthdays. Otherwise I am fairly frugal in my spending and for periods of time have even been able to overpay on the mortgage.

The property will almost certainly increase in value over time so the equity will go up without much effort. Worst case scenario in future is you can't afford the mortgage and have to sell and downsize. Not great but you'd manage.