Borrowing £1m+

[EllaSW]

Madness?????

@EllaSW I do feel happier now that the work is almost finished. But I did go through a phase of ‘what have we done’ though, rent on a similar property would be the same or higher than the mortgage. I also felt mentally trapped by the large debt, even though it financially makes sense to pay your own mortgage rather than rent.

We're in the same boat. I feel it's madness but also I can't get the home I want without doing it so I'm just looking at it in the it's cheaper than renting the equivalent property and can sell if it all goes terribly wrong. We are also only looking at houses with a little needing doing to it and also in good location, just in case the market moves the wrong way and hopefully we won't end up with something we can't sell.

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 fundamentally disagree with this view, sorry. Yes 1/3 of income sounds totally reasonable, but the global economy is potentially heading for a really, really bad place. I certainly wouldn't be looking to take on such a vast amount of what is discretionary borrowing at this point in the cycle, and I say that as one half of a couple who has taken some big career/ financial risk in our time. Could you pay the mortgage long term on one salary? What if one (or both) of you get made redundant or get kicked out as a bad leaver with no pay off (I don't know what either of you do so don't know the extent to which this applies). Certainly salaries in real terms are going down.

OP you also haven't said how old you are and whether you are planning on having children or career breaks.

And everyone saying 'oh if it all goes wrong we can sell' I presume are not old enough to remember the property crash in the early 90s. That followed a price bubble a bit like we are seeing now, because of the end of MIRAS, and eventually property prices fell off a cliff. People ended up having to hand their keys back, because they owed more on their mortgage than they could get by selling up. Yes you were fine if you could continue to service your debt, but if you couldn't you lost everything.

30% got knocked off prices in London so don't tell me London property always goes up. About 80,000 homes got repossessed. I was just beginning my career so remember it very well - it was really shocking.

That's true, although when we bought we fixed at 6% in 2004. They subsequently went down.

In addition I lost my job in 2009 and our household income dropped by 2/3rds. We went interest only until we had got back on our feet.

We also had 2 DC and I went part time mid 2010.

I suppose what I am saying is that our circumstances have changed over the years, however one way or another we have kept things afloat and still have our house.

I am fairly risk averse, but also recognise you have to take some calculated risks in life.

Reading with interest as just applied for a mortgage in v similar circumstances. Adding an extra £2.5k to our monthly mortgage payments. Also it's my salary that makes it possible so not a small amount of pressure. We still have wriggle room and could afford a significant increase if rates go up etc. But it's scary - I worry that I will lose my job, might change my mind about doing the job I do, become ill. On the other hand those things might not happen and I will get my dream home.

life is short and I want to take every chance I can to live it the way I want to so fingers crossed they approve the mortgage!

Also maybe I will win the lottery - I invest heavily...

sorry my reply was to @MrsRobinsonsHandprints

@Daisydoesnt - indeed. We were only able to afford our family house in London because the developers went bankrupt and £50k came off the price. £50k was a lot then.

We earn roughly your salary and live in a house worth what you are looking to pay. Our mortgage is £300k. I wouldn't borrow £1m personally, I enjoy knowing that if one us lost our job, developed long-term health condition etc we would have no worries financially and wouldn't need to move. We live in an unstable world, I wouldn't want to risk it.

We earn roughly your salary and live in a house worth what you are looking to pay. Our mortgage is £300k

Surely this is incredible risk adverse & if everyone did this no one could buy!

Hi OP
similar situation with similar sums.
We had a house fall through in September last year and looking at the economic climate we’re holding off going again. The industry I work in Generally sees a decrease in spending when any factors point to recession. We’re starting to feel the ripples of that speak, more hesitant spending etc. I’ve subsequently cut down on recruitment etc.
It all could be fine, but im getting worried. Currently our mortgage is 12% of our income… we would be jumping to 30% (though it’s hard to tell with LTIP, bonus etc as our yearly income varies!)
we’re holding off for now.

We have similar salaries and similar mortgage. I’d go for it personally. Of course, we can’t predict what might happen with the economy / jobs etc but I take the view that if we have enough in savings, decent prospects, good insurance, good affordability then it will be ok. The hit on stamp duty is enough to make me not want to move too regularly

MN is so middle class! A lot of people on huge sums.

I love don't love how someone always comes on a post to post an irrelevant comment.

OP - I would go for it, sounds like you have crunched through the numbers. It's always a bit of a big gulp moment taking on more mortgage debt but when I did it I always had at the back of my mind I could switch to interest only for a while if we couldn't afford the repayments - not ideal but it would tide you along.

@EllaSW My husband works for a retail bank as a relationship manager in SW London and this is a very common scenario he sees. 2 high earners, mid 30s, looking to purchase a standard 4bed terrace in a gentrified area in the region of £1.2 to £1.5m. The mortgages are often £800k+ in these type of scenarios. It is extremely common.

The only thing I would add is age is a key factor as is whether kids will be arriving soon. He often sees that those who made that move mid 30s, very quickly had kids and very quickly had to reevaluate their finances. This often resulted in a move to Surrey 4+ years later for a slightly cheaper property and more space.

Those who made that move early 30s tended to have a few more child free years were they were able to save, grow their salaries and pay down the mortgage, which had a big impact on their ability to afford a financially less stressful life once kids did arrive.

If you don't mind me asking, how old are you and DP? And are kids in the pipeline soon?

Another thing to consider is that if you are dead set on wanting this type of house with that size mortgage as a proportion to your earnings, I would recommend doing this before children rather than after (as it may not be possible to pass affordability checks, even though you could probably still afford it).

If I told you I got stressed when I borrowed more then 100k on a 30k salary 10 years ago would that surprised you? Now I owe 167k on 65k salary and feel a lot more relaxed about it despite being 67% more and I m 10 years older.

It's all perspective and to some extent risk appetite

If you are planning DC have you priced childcare costs into your affordability calculations?

The rent on a house that size would be £2k per week, so even if they hand the house back in 25 years they will have saved money.

And more than likely over 25 years they will have equity for a smaller place out of London - the people who I know who do this plan to retire up north or overseas.

It feels wrong to me too, but it’s not as ridiculous as it sounds on first look.

@Frauhubert I understand that totally. The works must have been disruptive but hopefully you're nearly at the point where you can just enjoy your home!

@heforshe This is a really thoughtful and helpful post. Lots of food for thought - thank you. My husband is 40 and I am early 30s so yes kids may be in the pipeline. We'd both continue working in that scenario but childcare costs are clearly not low!

@oiltrader Really not a "covert brag" but I'm sorry that you read it that way.

Also worth considering the timing of any children and how this may impact your health, time off on mat leave and therefore career, and also finances.

What I mean by this, is that very often mid 30s professionals tend to have 2 children in relatively quick succession. So what you find is extreme tiredness trying to balance a small child while pregnant with another, disconnect from work and lack of career ops while in the cycle of being pregnant, on mat leave, pregnant again, and then mat leave. This can often take out 4 yrs off your career (even more if you return part time). And finally, financial stress from balancing 2 sets of nursery fees.

All of these factors were common in the couples who then sold up to move further South, it's almost like a playbook.

That being said, my DH is not aware of any couple who regretted maxing out to get the home they wanted in London. It gave them great satisfaction and the memories of those years stay with them forever.

I’d consider the children impact. Childcare full time could could be £1500 pm + for a single child, would you look to privately educate?

is your income likely to increase?

we’re similar ages with similar incomes but only took on £500k mortgage, I like the comfort of knowing we’d be ok if one of us lost our jobs

@heforshe You read my mind! I'm exhausted just from reading your post 🤣 this is exactly the debate I've been having with my myself and honestly it's tricky when you don't even know if children are a possibility

We are also very similar ages to the OP, similar income range (maybe slightly higher but who knows with bonuses this year…) and also bought with a c.500k mortgage. Not a fashionable part of London (do regret that a bit) and no children yet but the calculation was based on having 2 maybe 3 children in the next couple of years.

Trying to pay down the mortgage as quickly as possible as we have 3.5 years left on a 5 year fixed but our extension is draining the reserves pretty fast (also slightly regretting starting on the extension…).

If I were to do it again, I honestly think I would have gone for a more expensive property in a done-up condition in a more desirable area, so honestly would say go for it.

Incorrect. Modern society wanting it all now, wanting the big house but not willing to move through the ladder to increase equity.