Borrowing £1m+

[EllaSW]

Madness?????

I'm not doing interest only.

@TaranThePigKeeper Monthly repayments would be 4k so a 1/3 of joint monthly takehome but that would be overpaying a bit so mandatory payment would be a bit lower. Probably quite common a proportion I guess?

The house couldn’t be sold to pay off the loan at the end of the term

It depends on the loan to value. We’re at 40%, so would need a 60% drop in property prices before we needed to supplement it with our savings.

As it's related to income why would it be madness?

Interest only at 2.5% interest is just over £2,000 per month.

Can you fix interest only?

You’ll find lots of threads on here where people tell you the percentage they pay. I’ve never been happy paying more than 25%, but that’s of a much much lower income than you clearly have, so it would have a disproportionate effect on our disposable income and wiggle room. If you’re happy that you could keep up the repayments of one of you was suddenly out of work or sick, then fine.

Yes, that’s what we’re on.

Depends on value of the house, salary you earn, stability of your job, other assets and the proportion of net monthly receipts servicing it represents.

As an example:

House cost - £1.5m
Deposit - £500k
Mortgage £1m
Salary - £300k
Multiple - 3.3 x
Monthly repayments 25% net income

Absolutely yes I would in that scenario, or any other situation where deposit was higher on a higher value house. On paper it all looks pretty comfortable, so don't be phased by the big numbers (I'm in finance so deal with large figures every day).

@Starseeking thanks. It'd actually be more like monthly repayments of 35% net income (for various reasons) so a little less comfortable

Interesting to hear how varied views are. I wonder if that's because some see a mortgage as a lump sum to be repaid and others see it as just another monthly outgoing

How secure are your roles and how quick will your salary increase?

35% for us when we first bought our home felt less good as DC expenses piled on and frankly we like wiggle room

I realise a lot of “fairly regular” (!) houses now in London can be 1m+ but is there any way you can up the deposit / move a bit further out to give yourselves a bit more breathing space?

Mortgage poor is a thing and at some point you may just want a bit more freedom from those payments

@pitterpatterrain you make a v good point and this is the thing - i like wriggle room too. Tbh we are in generally secure careers and salaries should increase so i shouldn't complain. It's just that life can throw all sorts at you and I wonder if 35% is too high, especially in these uncertain times. How did you manage once you had children? Did you find it stressful?

And yes I know, just crazy that a "regular" house can be "worth" that much!

Unless you are in roles that are necessities of life ie you are both surgeons or dentists or GPs , I would be quite wary unless you are both quite prepared to sell up and scale back if anything went wrong with jobs or health as I've known several people with superb paying jobs that seemed very secure suddenly find that wasn't the case. I would also factor in whether or not you've got good insurance either privately or via your jobs to cover any longer term sickness etc or separate mortgage cover on payments at that level

If you don’t have DC and are planning them have a think about how you financially manage during parental leave - mine was not particularly generous at the time; what care you would need as that could easily be another 2-3-4K depending upon the kind of care you are looking at per month, then you roll into school if you have school fees vs state

Basically DC expenses can add up, we extended the mortgage to get down by a bit per month to give us a bit more room - once the DC were in school and our salary situation changed a bit we moved to overpaying

The other thing is bigger house = bigger bills - have you checked council tax, heating estimates etc

It's all relative @EllaSW. Even at 35% net income, which is a big chunk, you're still at the upper end.

Using examples again:

35% of £5,000 = £1,750 leaving you with £3,250 for everything else

35% of £15,000 = £5,250, leaving you with £9,750 for everything else

Your lifestyle and committed outgoings will determine whether nearly £10k a month is enough wriggle room to service a £1m mortgage.

Bigger house will be more expensive regarding bills, maintenance and upkeep, but the real consideration will be if you have any DC, and what you spend on them. I had two DC at nursery together for 2 years, and although I could afford it, seeing that £2,500 go out by DD on the 1st of every month made me wince. Even though I was still able to put a further £2,000 into savings every month.

If you have 2 DC in private schools, the costs will likely be similar/more, except you're committed for much much longer. You'll also have to think about how you'd pay for big ticket items such as a new car and holidays, which can be thousands all in one go. If you sit down and write down all your average expenditure for each month, you should be able to work how comfortable comfortable is.

How long is it fixed for? We are just coming to the end of our (much lower!) fixed term, and if we didn't find a new deal it would jump from 1.1% interest to 4.2%. Obviously we're not going to do that but we're still aware we might not be able to get the same rate we've got now, the base rate has gone up massively and we might end up with a worse rate than we had before. If that happens at the end of your fixed term, could you afford a jump in repayments?

I personally wouldn't because

1. If you are relying on 2 good incomes to fund this and haven't had children yet, are you sure you will be able to keep working through their preschool years? Everyone's different but sadly I found having to leave my babies to go back to work made me clinically depressed so I could no longer work. Didn't see that coming.

1. If you are planning on still paying off the mortgage after 55 and are relying on your good income, are you sure you will want to do your high paid job at that age? Personally I just don't see myself having the drive or energy.

I wouldn't have guessed either of these things when I was young and child free. I thought I would work forever 😂 I'm so grateful now not to be trapped in work by a giant mortgage.

Thanks, these are all v interesting

@Swearwolf we would fix for five years, and remortgage or sell at the end of the five years

@Starseeking Thank you. I do agree, i just sometimes wonder if I'm too relaxed about it. And as @pitterpatterrain says I hear that DCs change things a lot if you have them

@Crikeyalmighty not doctors or dentists! But job security is good and we have insurance

Things will change a lot if you have DCs. You sound a bit vague about this and it might be good to think more fully about it.

You have a well paid job so presume it's a professional job where you have to work long hours and be available.

So if you have DCs you will either need to do fewer days (and reduce your income) or pay significant childcare costs.

Others will be able to add more but these will be in the 1000s per month depending on what you need and how much flex you need to keep for work.

If you send your children to private school you are looking at approx £45k a year for two children at a primary prep school. I know this as a friend has just moved her two into the private system. That's getting on for £4k a month - probably similar to what you will have been paying in childcare fees when they were pre school age.

You can send them to a state school, and there are great ones in London. But then you need to make sure that this house you're looking at is in the right location to get your kids into a school you'd be happy with for primary and then feed into a good secondary.

You are approaching it wrong. Look at the affordability rather then payment sum. 1/3 of the total income is not bad. I guess you are either buying a nice detached in a leafy part of Surrey/smth similar or decent place in a desirable neighbourhood in London. It is likely to grow in value even with minor fluctuations. What is the worst can happen? You loose one income, but perhaps will have redundancy payment, savings etc, you can always ask a bank for 3 month break etc. If neither works then you can sell and buy something smaller.
I would go for it

We are on combined £220k, mortgage is £2700, bills are sky high because Richmond council, just spent a significant amount on ‘cosmetic work turned serious work’, for 1 year i felt like bills were coming through the doors, windows and chimneys. Are you buying a house that is absolutely ready to move in, or it needs some work? Mind that every job in the house is 50% more expensive than you think it is. Have you got £x amount of stamp duty ready to flush down the stamp duty toilet? Etc

@Frauhubert yes ready to move in and we have the stamp but monthly repayments would be 4-5k. But then rent is also at least 3k monthly in the same areas

@Frauhubert do you feel happier with your choice now that the work is done?

i love these covert bragging posts

But this is on the back of decades of low interest rates.