Taking on a large mortgage in current climate?

[HighInPolyunsaturates]

Just wondering if anyone has any thoughts on this. We have been looking to move to a bigger family home, I guess a 'forever' type home for a while. Detached and bigger garden are our dream.

Prices are astronomical at the moment, there is a lack of availability which pushes everything up, food and fuel are going up, interest rates about to rise and DHs job is less certain than previously. I'm part time but on maternity leave with our 3rd DC (hence the desire for a bigger garden etc).

The type of house we're after is a lot of money and our mortgage payments would be doubled (or more, depending upon interest rates).

Is it a crazy time to extend ourselves financially? Should we stay in the affordable house and make do? Our current house is really, really lovely but our older two are sharing (B/G) and our small garden is overlooked. We can afford holidays etc and don't have to worry about bills.

Hmm. Anyone in a similar quandry?

Hard to say without more financial details, which you may (fair enough) not want to share online.

Ultimately you just have to run the numbers and play around with different variables - what if interest rates were 4, 7, 9%? What if the energy cap doubles again? What if you don't return to work after your maternity leave ends?

Kids not having to share rooms, detached house and bigger garden are all lovely, but not if you are worrying about paying the mortgage each month.

It sounds as though you will need to move really so that you have space for everyone. Is there an in-between that you would be comfortable with? House prices are still rising so I would personally be trying to do it sooner rather than later as I'd be nervous about being priced out. Could you go for a semi rather than fully detached for example? Could you get a slightly larger but not dream garden etc? Or plan ahead, go for the dream but save as much as possible between now and it happening(not easy I know) and forgo the holidays for a few years. It really depends what you want more as a family.

I'd speak to a reputable financial advisor and see what your options are, although, if your DHs job isn't secure (or even at least partially secure, I mean, who has a job for life any more these days, right?) now might not be a great time to extend yourselves financially.

Personally, in your situation, I wouldn't go for a massive mortgage - the stress of losing your home would be immense and impact the whole family.

Are there other things you could do to give yourselves a bit more space such as install a lodge-type building in the garden? You don't say how old your DCs are, but could this be a possibility if they're teenagers/approaching teens for an additional bedroom? A friend of mine built a lovely little cabin in her garden for her 14 year old son to use as a bedroom but purposely didn't install a bathroom so he'd have to come back and forth to the house and she could keep an eye on him (shortly before selling the house, she had a shower room and WC installed which added value to the property overall). Even as a short-term measure whilst saving a bigger deposit for a larger house, this could be an option if your DCs are old enough.

Is there a possibility for an extension to add the extra space?
This might be cheaper and can be finaned though re mortgage or even a loan.

I can't get away from the fact that inflation is high, which always almost means increased interest rates.

The difference between 1% and 2 % interest isn't 1%, it's double. If it should go to 5%....

It's really not that long ago (well within living memory) that rates were at 13/15% and consistently above 5%.

If that happens, not only will people with large mortgages find them unaffordable, but there must be a reduction in house prices, simply because far fewer people will be able to buy.

It might never happened course, but it seems to me that all the conditions are there that it might.

As previous poster says, we would need the numbers (or percentages really) do give our opinion and even then, everyone has a different level of risk they are happy with.

What would worry me about your situation is that you mention your partner’s job is less secure. Could you manage the mortgage payments on your wage alone - if you are part time and the kids are old enough not to need childcare, then you could work full time, if the worst was to happen with your husband’s job.

They say work on the rule of thirds. A third of take home (after tax etc) pay on your mortgage, a third for bills and crap and a third to save. Though it all depends on how much money you are bringing in. A third of 10k still leaves 6k+ for everything else, a third of 2k not so much!

If the numbers did make sense, then you would want perhaps a 10 year fixed mortgage to help give you some security. And if not, as someone said, make a spreadsheet that changes the mortgage payments based on interest rate climbs. Maybe see if you could afford them if they went up to 5%?

We are looking at taking a huuuuge mortgage for our forever home (36% of take home) but my job is very secure and my husband has taken steps to get a more secure job, it’s been a drop in pay for now but in 3 years time he will be on a 1/3 more pay. I also only work part time but have scope to work many more shifts. My kids will no longer need childcare in 2 years, we are therefore ‘happy’ (or happier) to take on this big mortgage with a 5 year fixed. We have also fiddled the numbers to see what will happen to our outgoings in the event of worsening interest rates and energy bills.

Sit down and work it all out, it’s boring but the numbers will give you the reality of your choices.

Is there a compromise that gives B and G separate rooms without going all out forever trophy home

Is there any potential in your current house? Building work is more expensive but are there any other solutions for reconfiguring that might buy you a few years?
A garage that could be converted, putting up a stud wall etc.
If you are in a two bed with three kids then the risk might seem more worth it than if you are in a three bed.
What sex is your baby? Would they share with the middle child in time?

It's not a great time to take on risk of you are not overcrowded to the point it negatively impacts life but I would try and save the difference in mortgage payments (or overpay of it makes more sense with interest rates and you have other savings) so you are not getting further behind. Of course that depends on what happens with houses prices but I can't see how they can continue to rise against the backdrop of rising cost of living and interest rates.
It is the lack of supply and condensing three years of 'normal' house moves into one causing a bubble

Thanks for the replies. Lots to mull over.

The percentages are roughly that our current mortgage is about a quarter of take home pay, a new mortgage would be just over a third. That's at current interest rates, obviously could go up with interest rates. My salary isn't enough to cover it with anything left over, DHs salary is much bigger.

A new house could be less expensive for utilities though as our current house is very old/draughty and expensive to heat.

New baby is the same sex as the middle child so it is possible they could share and eldest could go into the nursery (we have master bedroom, kids room and a small nursery bedroom). For some reason I had never really considered that but it makes sense to think about in a few years. The older ones are 6 and 4 so maybe in a few years could put the oldest (boy) into the nursery and the girls in together.

Not much scope for extending this house I don't think, the loft is a possibility but it's already a tall, thin townhouse with lots of stairs.

To be honest we're unlikely to ever find a new place that meets my DHs exacting standards🙄but that's a thread for the relationships board...

Thanks again. It all feels very pressurised but also quite uncertain at the moment so I don't know what to do for the best.

In comparison to your salary how big are the mortgage payments. 1k out of 3k is different to 2k out of 6k as there is more left over. Can the mortgage be covered by either one in case of job loss?

I don't think it's a no go but I wouldn't bank on making lots of money on what you are buying as I think we will have low growth & I would fix the mortgage.

I can't get away from the fact that inflation is high, which always almost means increased interest rates.

There's the argument that increasing interest rates won't reduce inflationary pressures. Plus the BOE won't want to send us into a recession although it may not be avoidable.

It's unlikely you would get a massive mortgage now anyway as the banks are tightening up.

I agree I don't think it will go back to 15%, but I can see 3%-5% (still very low by most historical measures) which would be a huge increase in payments for people used to such low rates.

It is a tricky question! It does sound like you need an extra bedroom, but maybe look into a compromise and more affordable option? Sometimes it's a case of choosing between ideal house in a less expensive area, or a less ideal house in your perfect location, and compromising. Could you get a slightly cheaper bigger house elsewhere? Or buy a house where you could later convert the loft or add an extension?

Also, it might be worth thinking about getting life insurance if you do buy a more expensive house and can't pay the mortgage on a single wage. I know none of us want to think about how we'd cope without our partner, but if you couldn't afford the house alone then it's something to think about, especially when you have kids. Hope that's not too morbid, sorry! :)

We are also looking to move to our forever family home at some point. We have a 4 bed detached, but the garden is small and we have 3 dc too. DH has the smallest bedroom as his office as he has always wfh so there isn’t enough space long term for each child to have their own room.

My dc are a bit younger, eldest is 4 and starts school in September, and the twins are nearly 1. We can manage at the moment, and childcare costs are high in these early years so we will probably be better waiting a few years anyway. I don’t think house prices are going to get much crazier where we live, and there’s not a lot coming on the market anyway.

So our plan is to keep saving and wait it out, unless something comes on the market that’s unmissable.

I bought my first house in 2006 and there was a similar feeling then- prices going crazy, fear of never getting on the ladder, FOMO, seller’s market. It’s how long the bubble can keep going for though.

Id wait, we bought 6 months before the crash last time. Life changed, we could always afford the mortgage but it meant we had to wait to sell when i didnt want to wait.

its not a nice feeling, feeling trapped