£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

@Bootikin

Jesus Christ I’ve just looked back and seen your pension is tiny. Are you mad. You are currently paying over 40% tax right? You need to Chuck money into your pension to save tax and put money aside for retirement urgently. You’re nearly 50 but still speaking like a millennial .

Fgs downgrade your real estate ambitions and plough money into your pension and flex the tax relief muscles! I’m shocked a highly educated person with a phd hasn’t realised this.

Please don’t make financial decisions until you’ve seen an FPA, joined Which Money, and done some serious reading. You’ve made one error in real estate already (sorry, buying a studio was a terrible mistake, putting aside the cladding which was not your fault). If you’d bought a two bed semi in zone 6 with what you’d spend on that studio you’d be laughing now.

Don’t make any moves until you have put massive effort into educating yourself seriously on the rest of your financial life. Stop pissing away so much on rent; try living a bit more modestly for a year. And dont get a half million mortgage ffs.

Great post. Saved me typing it all out.

I sometimes wonder what planet some people on here are on tbh. Certainly not the same as most people.

@snoktruix

Why do you have to live in London? We have a beautiful 3 bed detached cottage in a rural village, 100+ miles north of London, but the train takes just 1.5 hours to get to London. Our cottage was £210K. With almost acre of land too.

We bought our first home in the early 1990s and made £280K on it. Got it for £50K, sold it for £330K. With the £280K profit, we bought our cottage outright, and paid off the remaining mortgage (there was around £15K left.) And we still had around £45K-£50K left to decorate and spruce up our new cottage. We put £35K in a savings account

You don't have to live 100+ miles north of London, but surely you can live somewhere where you don't have a half million pound mortgage at nearly 50! Fuck that. Me and DH were mortgage free in our mid 40s. THAT'S how life should be. Not half a million in debt at 50.

Look at it this way. The two of you need to accumulate a lot of capital over the next twenty years.

The best way to do that would be to take advantage of 40% tax relief on pension savings (at least while it lasts). Out of £160k you should be able to put away £80k a year (out of untaxed income) and live comfortably on the other £80k (which would be taxed). Over twenty years you would save £1.6m. At 67 you could then take a £400k lump sum tax-free (25% of the total). I would be doing my best right now to find a lender who would give me an interest-only mortgage based on planning to use the pension lump sum to pay it off. The remaining pension pot would generate an annuity income of around £40k pa as an income for life.

That's a very rough and ready idea. There are limits on pension savings which you might bump up against, and I've taken no account of your partner's NHS pension (which might be quite generous). But you're clearly an intelligent bloke who understands spreadsheets. Set one up. And see a financial advisor FFS!

@Bootikin

Jesus Christ I’ve just looked back and seen your pension is tiny. Are you mad. You are currently paying over 40% tax right? You need to Chuck money into your pension to save tax and put money aside for retirement urgently. You’re nearly 50 but still speaking like a millennial .

Fgs downgrade your real estate ambitions and plough money into your pension and flex the tax relief muscles! I’m shocked a highly educated person with a phd hasn’t realised this.

Please don’t make financial decisions until you’ve seen an FPA, joined Which Money, and done some serious reading. You’ve made one error in real estate already (sorry, buying a studio was a terrible mistake, putting aside the cladding which was not your fault). If you’d bought a two bed semi in zone 6 with what you’d spend on that studio you’d be laughing now.

Don’t make any moves until you have put massive effort into educating yourself seriously on the rest of your financial life. Stop pissing away so much on rent; try living a bit more modestly for a year. And dont get a half million mortgage ffs.

Out of the 19 years since I left university (at 28), only 12 of those have been in jobs with employee pension schemes. I should have been paying into my own pension obviously during those other years.

You've scared me, but seriously thanks for your honest assessment and reality check.

I will look into getting some financial advice for sure. I guess downgrading my ambitions means going for a much cheaper property or further out of London (or leaving London).

I used to live in Muswell Hill area. I remember looking at the Chapel Place flat years ago. It had a party wall in the bedroom with a massive pub. Where I live now (St Albans) is just as buzzy.

Great transport links - - 22mins to Kings Cross, 30 to Blackfriars or London Bridge.

I think in your shoes I would buy something like this:

www.rightmove.co.uk/properties/113616305#/?channel=RES_BUY

So £1600 a month, room for a home office in the garden, good broadband speed, all the pubs, restaurants and coffee shops you could want.

And all right opposite a battle site from the Wars of the Roses (they have these stunning red and white blossom trees along the road to commemorate it).

Commuter costs are high compared to London as someone else mentioned. Our devs are only in the office 1 day a week - could work for a hybrid role?

@mellicauli I looked at commuting costs for St Albans before- it was around £385 per month. my flat in MH's poorer cousin, East Finchley costs the same as the terraced house and in the end i could not justify nearly £700 in commuting costs for DH and I. I know people keep telling us to find flexi-work, we can both do our jobs from home but DH still goes into his office every single day for work simply because the CEO thinks that people who WFH are unambitious or something like that (and its one of the big banks and most of them seem to have that same mindset) . My manager expects me in the office at least 2-3 times a week (and thats how it started for my DH too,but he is in the office almost everyday now).

Particularly since OP's partner works in a job that cannot be WFH, I wouldn't bank on not needing to spend on commuter fares unless she literally gets a job in st albans hospital or watford hospital or something like that.

The other wild card for OP to consider is the financial obligations his partner has back in the Philippines. Often the family expects quite a bit of a contribution, which can be tough to manage. Do you know the extent of what is being sent home? How many "emergencies" crop up typically on top of that?

I find this really interesting. We are mid forties, three kids, somewhat higher gross income than the op but probably the same net (single salary vs two tax allowances). We have a big mortgage. We plan to prioritise overpayment and aren’t worried, partly due to DH’s prudent pension savings - he’s chosen to sacrifice a chunk of salary for the last decade. We’re also going to make even better use of the pre-tax pension allowance, then cash out the 25% to pay whatever’s left of the mortgage when the time comes.

With double income and no kids you should be able to overpay mortgage and pension hugely, unless you have crazy spending habits or your wife is sending a huge sum home each year.

I absolutely echo those saying get some proper financial advice and work out where you money goes and how you can invest like hell in your future comfort for the next ten years.

When will the mortgage be repaid on the studio? You’ll have an income from that in retirement too, maybe 8k a year?

Think about it this way: a more central property is more expensive. An outer London is cheaper. HOWEVER the cheaper involves big spend on transport, which is money down the drain, which would otherwise be INVESTED into the house. Eventually you’d have an asset (a more expensive house) that you can downsize from if necessary to free up pension money—eg you can sell the 500k London flat and buy outside London for 300k, have 200k to retire on, plus the income from the studio. I’d go low service charge, low transport costs, every cent into the property itself. When you retire you won’t need the home office so downsizing is easy, or if you want to keep the space move out a bit. Rest is your retirement funds.

Also yes you should be using pension and Isa tax free allowances. A financial adviser would be able to suggest the best balance for these, which might bring down your house budget. Or you could ask them about going heavy on the savings with an interest only mortgage

@Flowers500

When will the mortgage be repaid on the studio? You’ll have an income from that in retirement too, maybe 8k a year?

Think about it this way: a more central property is more expensive. An outer London is cheaper. HOWEVER the cheaper involves big spend on transport, which is money down the drain, which would otherwise be INVESTED into the house. Eventually you’d have an asset (a more expensive house) that you can downsize from if necessary to free up pension money—eg you can sell the 500k London flat and buy outside London for 300k, have 200k to retire on, plus the income from the studio. I’d go low service charge, low transport costs, every cent into the property itself. When you retire you won’t need the home office so downsizing is easy, or if you want to keep the space move out a bit. Rest is your retirement funds.

It’s an interest only mortgage (on the studio), so produces a small rental income but eventually needs to be sold.

Would you say then I should just be downgrading to a cheaper rental rather than buying say a modest 1-2 bed?

No buy a 2 bedroom flat where you can fit a double bed and wardrobe into the second bedroom within London.

The second bedroom is so you can work at home and if things become financially tight you can take in a lodger. (You can get Monday to Friday people.) The place being in London allows your DP to work in more hospitals with ease.

Look for share of freehold and outside space with the flat. Also make sure the building doesn't have a lift to keep service charges down.

Make sure you fix your mortgage for 5 years.

Then pay more money into your pension and try to over pay the mortgage.

Also be prepared for you to work to 70 rather than late 60s.

Then when you sell your studio pay off some of your mortgage.

Your study is interest only!!!!!???!!! And it doesn’t sound like you’ll have the cash to pay to, so I’m reality you have no assets. This puts a different spin on things, yiu should have said… how much equity did you put into it/do you have? How much is it worth if the cladding is solved? How much are you having to pay on cladding, or is it being taken care of? I’m saying this because it sounds like you might actually have minus assets…

@Flowers500

Your study is interest only!!!!!???!!! And it doesn’t sound like you’ll have the cash to pay to, so I’m reality you have no assets. This puts a different spin on things, yiu should have said… how much equity did you put into it/do you have? How much is it worth if the cladding is solved? How much are you having to pay on cladding, or is it being taken care of? I’m saying this because it sounds like you might actually have minus assets…

Have you been including this rental income in your description of your income, or have you been putting the cash aside to pay it off? What are the timelines, is there a possibility that you’re going to lose your equity here?

@Flowers500

Your study is interest only!!!!!???!!! And it doesn’t sound like you’ll have the cash to pay to, so I’m reality you have no assets. This puts a different spin on things, yiu should have said… how much equity did you put into it/do you have? How much is it worth if the cladding is solved? How much are you having to pay on cladding, or is it being taken care of? I’m saying this because it sounds like you might actually have minus assets…

It should be worth about £375k if the cladding is solved, and there's £250k left on the mortgage, so about £125k equity. Cladding should in theory be taken care of by freeholder + BSF.

@ulez As a an immigrant, that is too true. my friend who is from my country and works as a doctor (working outside London) has had people tell her that they don't want a non white person looking after them. If people can tell you that when they are in need of medical attention, I wonder what else they are capable of. Not that it can't happen in London, but its a very different dynamic as the capital is so cosmopolitan. You don't feel like the only one in such a situation.

@RedWingBoots

Would you say then I should just be downgrading to a cheaper rental rather than buying say a modest 1-2 bed?

No buy a 2 bedroom flat where you can fit a double bed and wardrobe into the second bedroom within London.

The second bedroom is so you can work at home and if things become financially tight you can take in a lodger. (You can get Monday to Friday people.) The place being in London allows your DP to work in more hospitals with ease.

Look for share of freehold and outside space with the flat. Also make sure the building doesn't have a lift to keep service charges down.

Make sure you fix your mortgage for 5 years.

Then pay more money into your pension and try to over pay the mortgage.

Also be prepared for you to work to 70 rather than late 60s.

Then when you sell your studio pay off some of your mortgage.

Thanks that's helpful and sounds like a reasonable approach. The question is what price/area to ensure I can get enough paid into mortgage and pension in time, but that's what I need to investigate properly.

Buy a cheaper place outside London
Sell studio when possible put the equity in your pension.

You don't have to live 100+ miles north of London, but surely you can live somewhere where you don't have a half million pound mortgage at nearly 50! Fuck that. Me and DH were mortgage free in our mid 40s. THAT'S how life should be. Not half a million in debt at 50.

@ulez and presumably when you bought houses cost tuppance ha’penny, you were able to buy in your early twenties with perfectly normal, average wage jobs, and property prices have rocketed during your ownership gifting you an enormous nest egg with no effort on your part. The entitlement and lack of understanding of economic factors is mind blowing.

OP I’m serious, this cladding stuff might put a major spanner in the works. The freeholder DOESN’T pay—if they do, that’s passed on to you. If you haven’t already been sorted through the government scheme then you shouldn’t take it for granted that you will be. You could be hit with a bill in the region of 100k, it may take a lot of time and stress to sort and depending on how things go you could be liable.

@Flowers500

OP I’m serious, this cladding stuff might put a major spanner in the works. The freeholder DOESN’T pay—if they do, that’s passed on to you. If you haven’t already been sorted through the government scheme then you shouldn’t take it for granted that you will be. You could be hit with a bill in the region of 100k, it may take a lot of time and stress to sort and depending on how things go you could be liable.

Yes believe me i'm aware, and don't need to be reminded of this.. We've been assured that there could be some liability for leaseholders, but nothing of that magnitude. The freeholder seems reasonably on the ball with the plans, and the government committed to covering all remedial work on building over 18m like ours.