Are we stretching ourselves too far?

[Belinda2000]

My husband and I have been property hunting for a while now, without finding anything we really fell in love with. We started looking in a higher price range just to see if we would have more luck, viewed a beautiful house a few days ago, ended up offering the asking price (lots of competition) and our offer got accepted. Now that it starts sinking in we are really concerned that we are stretching ourselves too far. We are on a combined salary of £120k, have a deposit of around 185k and would therefore need to borrow 675k to buy the house for £860k (we are first time buyers). While the monthly repayments shouldn't really be a problem, we are concerned about all this talk about future interest rate hikes and what it would mean for us once we will remortgage such a large sum - we would probably for for a 5 or 7 year fixed but still we feel so exposed.
Are we overthinking this or just getting cold feet? Has anyone borrowed similar large sums?

That’s a HUGE mortgage. A lot depends on your job security, whether salary increases are likely, what your other expenses are and if you have (or are planning to have) children.
Your other bills are likely to go up, although some parts of London are known for cheap council tax.
It’s hard to say without knowing your circumstances or the house. If you are youngish, likely to have salary increases, don’t have big commuting expenses or a car, don’t have dcs and are more bothered about having this house than having nights out, holidays or expensive hobbies then maybe it’s fine. If you are too old to get an extended term or this mortgage will take you to 67, or you have or intend to have children, or it’s location means you have to run two cars then it seems a bit mad. Depends where you are too. Standard home in London isn’t the indulgence that a swishy marketed new build in an area with perfectly nice cheaper houses.

I think this is a lot TBH. Apart from the obvious risk of a hike in Interest rates ,( Even a small rise of say 2.5% will increase it significantly) If either you or DP lose your jobs ,or have to have a lower paid one what would happen then? I would not want to mortgage myself to the absolute hilt

The reason they'll lend OP the cash is because she has a sizeable deposit so the lender knows they'll recoup the mortgage if it goes tits up!
I'm going against the grain here but if you can manage it, go for it! You will have a sizeable asset at the end of it...in my circle of friends, the ones that took the risk that others poo poo'ed are the ones now sat on a fortune!

An £860k property for a FTB seems bonkers to me, there must be other properties, I don't know anyone who moved into their dream house for their first property. Anyway, that's up to you I guess but on your salaries I wouldn't take on such a huge mortgage - I'd want to be on double what you are on to borrow such a sum. We are on slightly less than you combined, and our mortgage is around £350k which is comfortable for us to be able to enjoy life too and not feel like we are scrimping by each month.

I think this discussion might be influenced by age and regional biases.

If you managed to get on the property ladder young in a relatively affordable place, and have benefited from rising prices as you climbed the ladder, your tolerance of big mortgage will be low as you’ve not had to take one on.

If you live in London or the South East, couldn’t get on the ladder until after 2008 when lending criteria needed a big deposit and prices rose much faster than your ability to save, then having a big mortgage is the only way to have a ‘normal’ family house. People talking about £875k buying a big, fancy house are applying a very particular frame of reference. That buys you a three bed semi in a rise road here, if you’re lucky!

*nice

I would absolutely do this. I’m looking to borrow a similar amount. That’s what houses cost where I live. I’ve got the same deposit as you. And looking at houses around 860. I’m single and struggling for the loan but I’m going to keep trying. I’d absolutely go for it.

@LuluLefevre

I think this discussion might be influenced by age and regional biases.

If you managed to get on the property ladder young in a relatively affordable place, and have benefited from rising prices as you climbed the ladder, your tolerance of big mortgage will be low as you’ve not had to take one on.

If you live in London or the South East, couldn’t get on the ladder until after 2008 when lending criteria needed a big deposit and prices rose much faster than your ability to save, then having a big mortgage is the only way to have a ‘normal’ family house. People talking about £875k buying a big, fancy house are applying a very particular frame of reference. That buys you a three bed semi in a rise road here, if you’re lucky!

I absolutely agree with you. I had to rent for decades. The only way I’ll get a normal house to live in is to take on a massive mortgage.

Seems ridiculously high. Have you sat and worked out a monthly budget of everything you would need to spend? Don’t forget increased energy costs and maintenance on a bigger house. Do you have kids? Are you planning to have some/more?

Have you actually got a mortgage in principle for the amount you need to borrow? 5.5 times income is a lot and there aren't many that would agree that. I work in mortgages and we would go to 5 times on higher incomes as like someone else said, when income is higher despite the % of the mortgage in relation to net pay there is still a decent amount left over
In your position I'd look very closely at your job both in terms of security and pay progression. It is common to stretch yourself on your first house but most do so in less financially volitile times and on the basis that their salaries will increase in the future
If you feel pretty secure work wise perhaps it is doable but make sure you choose at least a 5 year fixed rate. Rates are so so low right now that's there is only one way they can go. I don't think they will soar overnight but I do think they will start to rise at some point. Perhaps try to overpay in the early days or live a life where you can get some savings behind you, it's unsettling when you literally pour all of your savings into a property and have to start again. Likewise is there much work that needs doing? I wouldn't rush to spend further money on new bathrooms and kitchen if this isn't really necessary
Finally children. If you do want a family then this is something you really need to consider. Childcare isn't cheap nor is maternity leave and would you be happy to have to return full time just so you could pay the mortgage? Also schools, would you be happy with state education? Lots to consider I think. Remember despite what you read the majority of people don't buy an amazing perfect house first time around. We started in a new build flat and are now in a 4 bed detached. It's not huge and we could do with more space as we are a family of 6 but wouldn't dream of increasing the mortgage and putting our savings into a new property right now

Have you got an AIP? I’ve not heard of lenders offering 5.5x. That said, I would get the largest mortgage you can afford. It’s cheap borrowing, hopefully your salary will increase, and the mortgage gets smaller over time.

Is this a helping hands mortgage?

Have you got an AIP for the amount; and you’re just waiting for the proper offer, or have you managed to make an offer without one?

Do you want children? Childcare will be a big factor here, as will your general lifestyle.

What does that figure buy where you are? Is this a two bed flat in a prime area of London or a sprawling five bed?
Think you need to go back to the beginning and think about what you actually need. Is this way more than that?
Then consider impact on lifestyle. Do you enjoy your job? Is it highly stressful and do you want to commit to doing it for the next 25 years?
Do you want kids and if so how would you afford this?
Can you still afford new windows or a new kitchen when they need refreshing 10 years into the mortgage?
Do you value expensive holidays or other things you'll have to sacrifice?
Ultimately do you need this or have you got carried away with the fantasy dream/forever home? Because even if the house is perfect, lives inevitably change over 25 years so relocation may still be required

I was going to say can you actually borrow that much? I am not sure if the size of deposit means you can borrow a higher salary multiple. We had a large deposit than the OPs on our last purchase, slightly smaller income but we could only borrow 4.5x our salaries. Incidentally we ended up only borrowing 3x because we wanted to be comfortable.

OP there is a difference between, falling in love with a huge house and adjusting your expectations to what you can actually afford. Most people would fall in love with a huge home but are realistic and perfectly happy I’m something cheaper. As FTB you might be surprised by the hidden costs of ownership and the responsibility of repairs and maintenance which will all be much more expensive on a large property.

Worst case scenario
Op has to sell in 5 years.
And has at least the 185 they put into it. Plus whatever is paid.

So long as op goes in with open eyes about the real monthly costs mortgage and bills . Ans Maintenance. And decor and Furniture.

Versus lifestyle on remaining net income.

Plus Potential childcare costs.?

Has v Good life or illness insurance .
Then it s a choice .

Govt encourages taking on debt against property. Not much difference from the 40% govt loan on help to buy in London.
There will be a ton of people who won't be able to afford the interest on that 40% five years after buying and will have to sell.

If op has to sell up in 5 years
So be it.

This is mumsnet, a demographic living up north with mortgages of tuppence or paid off at 35.

I would look at whether you’re having children and need childcare as that can be extortionate. Otherwise, as long as you’re in an area that has always had good house price growth, and your jobs are secure- I would go for it. Houses are one of the best investments for your money.

I remember some years ago lots of people rolling eyes at a relative of mine for taking on a huge interest free mortgage over 35 years. They then upsized further and had loads of equity. Their latest home is enormous and they have more money again.

I would take it over a long term, fix the interest rate and find one that accepts overpayments.

That’s a crazy amount. No way would I take that mortgage on and we’re on a similar salary. Just because you can doesn’t mean you should!

"This is mumsnet, a demographic living up north with mortgages of tuppence or paid off at 35."

That's a huge assumption. I've said no and I'm living in an expensive area in the SE, with more than twice the combined income of the OP.

It's a daft risk to take right now - inflation is about to go through the roof.

An interest free mortgage? How did that work and where did they get it @Onandoff?

@RJnomore1

An interest free mortgage? How did that work and where did they get it *@Onandoff*?

Typo - interest only

This is mumsnet, a demographic living up north with mortgages of tuppence or paid off at 35

I'm in one of the most expensive parts of London and I've said it would be bonkers to take on such a huge mortgage on their salaries!

@Kite22

Nope. Housing shouldn't be more than 25% of your take home if it's to be comfortable.

Well, that's not entirely true.
If Person a takes home £20K pa and housing costs are 25%, they have £15Kpa to live on, for everything else
If person b) has a net family income of £200k pa, they have £150K to live on.
So if person b) went up to even 50% of net income, they'd still have £100K to live on, which ought to be able to absorb higher running costs.

I've used big figures but the principle is the same.

Plus, if living in rented accommodation, you are often paying out a lot more. My friend just moved into their first home last month and their mortgage is half the rent they have been paying for last two years, so they can ignore the % and know they can afford the new payment.

It takes in to consideration people living to their means on bigger salaries.

Plus I've never paid less for a mortgage than rent!

JoborPlay I pay £180 per month for an interest only mortgage and I live in a 700k house. It would cost about £2500 per month to rent my house.

@Cruiser11 how do you intend to repay the capital?

We’re moving in 5 years, we won’t need a large family house in the South East. Our house is worth just over 700k and we have an interest only mortgage for 144k so have plenty of equity to buy either a smaller house or a similar size house in a cheaper area.