£525k mortgage at 47?

[snoktruix]

Hi all,

I'm in a somewhat difficult financial situation. Due to general lack of financial acumen and foresight.. my partner and I (i'm 47, she 45) are still renting in central London (about £2.6k pcm). We only recently came to the giant realization that we are doomed in later life if we don't get on the property ladder. So we are thinking to finally buy a flat.

I do in fact have a buy-to-let property (worth about £360k, with £250k left on the mortage), but can't release the equity on it due to cladding problems which will take years to resolve.

We have about £100k in savings, and parents can help to the tune of about £70k total with stamp duty and deposit. So we are considering to buy a 2-3 bed flat in London, for around max £625k, with a £100k deposit leaving us with £525k mortgage and some savings buffer. (Due to the unsellable buy-to-let, we would need to pay the higher stamp duty rate unfortunately, but no way to avoid it).

Due to our age, this would need to be a 22 year term, so the payments will be on the order of £2.5k pcm, at the current rates. Our combined income is about £160k (that figure includes bonus).

Do people think this sound like a viable plan? I realize that taking on this level of debt, and payments, at our age is risky. But the alternative of renting into oblivion, with no other asset than that buy-to-let, seems worse. We seem to be a the point where it's do-or-die to get back on the ladder.

Any thoughts appreciated...

Best wishes
Jim

Given that the mortgage payment is about the same as your current rent, I don't see the problem. Your risk is that property prices could decline, leaving your mortgage underwater, but you're making a good down payment and will start with good equity.

If you have to stop working before the mortgage is paid off you can always sell the buy to let at that point. I'm in the US and have heard of the cladding problem, but why would it take years to resolve?

Couldn’t you live in the buy to let?

@MissConductUS

Given that the mortgage payment is about the same as your current rent, I don't see the problem. Your risk is that property prices could decline, leaving your mortgage underwater, but you're making a good down payment and will start with good equity.

If you have to stop working before the mortgage is paid off you can always sell the buy to let at that point. I'm in the US and have heard of the cladding problem, but why would it take years to resolve?

The estimate is a couple of years at least for the cladding "remediation", it's a big job (and the government funding for it not even officially agreed yet, so rather stressful in itself).

@Bushkin

Couldn’t you live in the buy to let?

It's a very small studio flat (albeit in a nice building in a nice area, Wapping), which we would not be that happy living in at our stage of life. Which was unwise I guess for me to buy, but I was young, single and stupid at the time.. (still stupid, but w/e).

My concern would be that 22 years is a long time to retirement, do you really want to work that long? What buffer do you have if either of you end up out of work ?

The other option of course is to move out of London.

Do you have flex in your monthly mortgage payments if interest rates went up which they have to have the next 20yrs? Also, you'd need to realise you will likely need to work till 67, are you ok with that?

Best thing you could do is live in your buy to let. Save a much bigger deposit.

I think you'd be much better to aim for a 2 bed flat more in the 400k price range.

You are on the property ladder: most people don't own more than one property.

I do in fact have a buy-to-let property (worth about £360k, with £250k left on the mortage), but can't release the equity on it due to cladding problems which will take years to resolve.

We have about £100k in savings, and parents can help to the tune of about £70k total with stamp duty and deposit. So we are considering to buy a 2-3 bed flat in London, for around max £625k, with a £100k deposit leaving us with £525k mortgage and some savings buffer. (Due to the unsellable buy-to-let, we would need to pay the higher stamp duty rate unfortunately, but no way to avoid it).

I dont know what the answer if, but I would be possibly looking at moving outside of London and looking at commuting in, or investing heavily in a pension.

Children?

@Bushkin

My concern would be that 22 years is a long time to retirement, do you really want to work that long? What buffer do you have if either of you end up out of work ?

I think we are resigned to the reality that we will just need to work until pretty old. We both enjoy work (me: software engineer, she: nurse) so not really bothered in principle about that. Though agreed if illness came along, it would be tough. I don't see an alternative other than just work hard, keep saving, keep healthy to the extent possible. We should maybe be paying illness/life insurance on the mortgage to cover for that eventuality, if it's affordable.

The risk of a mortgage isn't just that property prices decline, it's that interest rate rise to an extent that makes your repayments unaffordable. You'd want a good fix deal.

It sounds good to me. That's a low mortgage payment in comparison to salary in my opinion. I would be overpaying as much as I could in order to pay it off early to give early retirement as an option.

@Peanutmnm

Do you have flex in your monthly mortgage payments if interest rates went up which they have to have the next 20yrs? Also, you'd need to realise you will likely need to work till 67, are you ok with that?

Best thing you could do is live in your buy to let. Save a much bigger deposit.

I think you'd be much better to aim for a 2 bed flat more in the 400k price range.

I guess if it went from £2.5k pcm to £4k pcm, we could weather it for a while with some more frugal living. But yes it would suck.

Yes we realize we will be working till we are old or dead... Due to leaving things too late in life (I spent my 20s getting a useless PhD and had less income in my 30s, and my partner sent all her savings back to the Phillipines to look after her family).

Sure it could make sense to look for a cheaper flat, though obviously £400k buys you not much in London.

@BonesInTheOcean

I do in fact have a buy-to-let property (worth about £360k, with £250k left on the mortage), but can't release the equity on it due to cladding problems which will take years to resolve.

We have about £100k in savings, and parents can help to the tune of about £70k total with stamp duty and deposit. So we are considering to buy a 2-3 bed flat in London, for around max £625k, with a £100k deposit leaving us with £525k mortgage and some savings buffer. (Due to the unsellable buy-to-let, we would need to pay the higher stamp duty rate unfortunately, but no way to avoid it).

I dont know what the answer if, but I would be possibly looking at moving outside of London and looking at commuting in, or investing heavily in a pension.

Children?

Yeah commuting from the outside is a possibility, though maybe adds stress and some transport costs. We have no clue where to go though (have been looking mostly for flats in the cheaper parts of South London).

No kids, which I also regret.

I don’t see the issue on the money you have and what you’ve been paying in rent. Just get a good fix for at least 2 years though I would look at 5 years if you can get a decent rate. You can usually overpay up to 10% pa so chuck any extra you can onto it (earlier rather than later makes a difference). Maybe when your BTL is sellable you can sell that and remortgage your main home flat and be in a better position.

Life insurance linked to the term of the mortgage is relatively cheap but critical illness can be expensive.

Have you got a decent pension? I think that would make me feel better about it

@Bushkin

Have you got a decent pension? I think that would make me feel better about it

Not sure what the definition of decent is.. I have about £65k pension at the moment, not sure what that translates to in later life. (My partner's through NHS, i'm not sure).

I think you are in a good position but only if you leverage your income to somewhere better pricewise.
So, park the other property - it will tick along and could be your London base in the years to come or sellable (pension) when cladding resolved. Its security.
I absolutely would not buy in London, I'm the same age as you and choose to have a low key/ low expense life and its been eye opening. I work a four day week and am self employed and cannot imagine the daily drind. You can do that too if you move to somewhere nicer.
You dont have kids, or college fees and have a good salary. I'd be looking at outside London - whats stopping you moving outside and getting a remote/ part time/ hybrid job in software? I thnk you stick with the 'stay in London' plan it will cost you in lots of ways including quality of life.

Your pension I think is very low so you cannot lift that up if you are horsing your income into a 500K mortgage.
Move outside London, maybe rent and see, start to pay pension fast and then see if you want to buy. Payments to pension now will be worth it in ten years.
My fear is the mortgage is a huge stress if you got sick or could not work.

Personally, I'd look at cheaper options, for several reasons.

1. Fear of interest rate increases
2. To avoid having to take money from parents.

Would that £70k be a loan or a gift?

@Marvellousflowers

I think you are in a good position but only if you leverage your income to somewhere better pricewise. So, park the other property - it will tick along and could be your London base in the years to come or sellable (pension) when cladding resolved. Its security. I absolutely would not buy in London, I'm the same age as you and choose to have a low key/ low expense life and its been eye opening. I work a four day week and am self employed and cannot imagine the daily drind. You can do that too if you move to somewhere nicer. You dont have kids, or college fees and have a good salary. I'd be looking at outside London - whats stopping you moving outside and getting a remote/ part time/ hybrid job in software? I thnk you stick with the 'stay in London' plan it will cost you in lots of ways including quality of life.

I could work remotely, though tech jobs are more plentiful in London and may require some onsite presence. My partner's jobs have been in various London hospitals. We could conceivably relocate to another city though, sure, but a bit daunting since we feel like Londoners..

Get a good fixed rate and a mortgage that allows overpayment (lot are up to 10 per cent a year).

Look at the overpayment calculator on Money Saving Expert and play with the figures.

I'd set it for the 22years but aim to overpay where you can to reduce the term. That way you aren't overcommitted but can try and get ahead when you get bonuses or with a few hundred each month which can be cancelled in event of an unexpected bill

Are your bonuses guaranteed? The mortgage company wouldn't take DHs into account even though they've been at a consistent rate over the last 35 years.

@Gazelda

Personally, I'd look at cheaper options, for several reasons.

1. Fear of interest rate increases
2. To avoid having to take money from parents.

Would that £70k be a loan or a gift?

It's a gift (i'd rather not rely on BOMAD, but is the situation).