Are we overstretching on our 1st London house??

[Galwithaquestion]

Hi lovelies,

My partner and I are in a position to buy a house starting now, and have a deposit that gets us up to 15% of a £595k house in a beautiful, safe South London location that we both know very well and are currently renting in.

We have made some calculations and stress-tested ourselves, and are divided on what to do!

My partner is happy with a house in a less (I'd say far less) desirable area of London closer to £550k.

I think we have just found a house that ticks our key boxes in just an excellent area, which we'd realistically need to offer £595k on.

Do you think either of us is missing anything important?

On our incomes an interest rate doubling would take the mortgage to 37% of our hh income, which is above 120k. Redundancy would mean we'd need to rent out a room, but would then be comfortable.

We are expecting salary increases this July, which is also great. But I cannot help but think I am stretching too far and will be really constrained to stay in a stressful job because of this awesome, but expensive house. Have been dreaming about a career change in 5 years. I know, a lot going on! :)

I still think it is worth stretching, especially since having kids is at least 5 years away, and we could be in a less tight position then given our jobs.

What do you think? AIBU??

Definitely go for the bigger house and better location now. My EXDP was the cautious one, and convinced me to buy in an awful area on a main road ad he was so risk averse. While I loved the house itself, I felt depressed every time I left it as the area was so rundown.

Having split with him, I'm only able to buy the house I'm about to exchange and complete on because I've got a high income. If I'd missed this final boat, I'd be priced out of my dream area.

Talk to your DH and see if he'll come round, or you'll regret not having stretched yourselves in 5 years time.

I'd agree with fixing for as long as possible. We fixed for 10 years and I'm so glad. Also @YankeeDad's suggestion of overpaying is also a great one. Once you set it up as a regular payment it just goes out as a bill and you get used to it, but it will shave years off your mortgage. The money saving expert has good calculators for this.

@Badgertastic

I'd agree with fixing for as long as possible. We fixed for 10 years and I'm so glad. Also *@YankeeDad*'s suggestion of overpaying is also a great one. Once you set it up as a regular payment it just goes out as a bill and you get used to it, but it will shave years off your mortgage. The money saving expert has good calculators for this.

I’m not sure I’d necessarily fix for 10 years because as I understand it, that results in a loss of flexibility. If circumstances change and you want or need to sell and exit for whatever reason, penalties can be huge with a long duration fixed mortgage. Also some mortgages set tight limits on overpayments. Admittedly interest rates are low currently and that supports some length of fix, but I’d personally fix for somewhere between 2 and 5 years if I were borrowing right now,, and I would look for enough flexibility to overpay somewhat more than the maximumthat I think might be realistic, so that if income is better than expected I can use at least some of the surplus to drive down the debt.

But the most important thing, if you don’t like debt, is pay it down early and often if you can!

I would go for the better area but considering the minimal difference in price, I’m assuming the other place has far more to it in terms of size, parking or outdoors. What are you life plans? Children? If so, state or independent schools?

Best safe location every time. X

What locations are they?

Get a 5 or 7 year fix. Make overpayments. By the time the rate ends the house will have gone up in value and most likely be a smaller portion of your wage. You can always then remortgage over a longer period if rates are a lot higher.

Agree with better area. The difference in price isn’t huge (well on a mortgage! Is huge if you were talking cash!), if you were going to take advantage of a cheaper area, I thought you’d be saving more like 200k (in London).
Although it does seem risky and you don’t know what life will bring, the fact you’re planning 5 years with no kids means you’ve got some time to overpay a mortgage / save up before having kids. Plus 5 years of pay rises (sounds like) so you should be in a good position.

I would do it but commit to overpay as much as you can while you are child free .

On a personal level, you* need to also factor in the cost of childcare. Do you know what it costs now per month? It's eye watering.

*I say this not because childcare is your responsibility but can you meet your share of both the mortgage and childcare if you change jobs into a lower paid sector. It is not fair to expect someone else to pick up the financial slack if you alter the goalposts after you buy.

I don't think £45k over 25-30 years is too much to worry about. I'm intrigued where in south London you can get a house for that price and describe the area as you do.

I think as interest is so very low and inflation is still on the up interest rates are likely to more than double but still be low. Today base rate went up to 0.5 percent. I am expecting base rate to be up to 2 - 2.5 Percent by end of year. Get a 5 -10 year fix.

We appreciate it guys, and are in the process of buying the more expensive house!!

Just a general wonder which area you found a house for £595 that is desirable as well as safe is SE London? We are closer to 200k a year and 650k already looks like a stretch to us. I would imagine if you don’t mind having your life about the house, then it should be fine. Really depends on the expectations.

if you're earning 200k, how is 650 a stretch? no deposit?

I know
We are on 125 and taking out 575 against a 750 house. We don’t mind though as we are hopefully going for a new house and I am bottom of my salary scale whilst dh is only part time and earnings will substantially increase in the not too distant future. Sadly thats the SE having to stretch oneself.

There is a deposit, but we aren’t looking to put all of our savings into the house. Because we also have investments. Also we travel a lot, we spend money too :) not only sitting looking at it.