Taking on a 1 million pound mortgage - crazy?

[Pogpog21]

Has anyone got or recently taken on a mortgage 5 times relative to their gross pay? For context we are early 30s, have 520 equity in our house which is 810k in value. We have savings to go toward stamp duty and excess needed for a 1.8m house (but will be left with about 50k at the end of it and a huge mortgage). We have been looking for a house for a year - a “forever home” and prices and demand have led us to conclude we should go all out and just move now and stay there until we downsize/ retire. The house offers everything we could ever want - it is huge. We earn 200k base between us + variable bonuses (~usually around 30k combined).

However are we mad to do this right now?

We’ve got a mortgage offer locked in for 5 years at 2%.

On one hand, I’m worried about rising rates in the future and we’d be comfortable and safe financially in our current home.

However on the other hand if we continue to earn as we do I think it makes financial sense to put money into something rather than building savings that are being eaten up by inflation and we are huge home people - we have a dog and a little one and spend most of our time working (me working at home a lot now) or chilling at home/ hosting at home. Our current home is lovely but could do with a few more rooms and a bigger garden.

any insights / thoughts / similar experiences?

I'd say on a salary of 200k is mad your income multiplier is quite low for 1 mil mortgage.

It all depends on what your other outgoings are and what your mortgage would be out of the money you have left.

If you still have a cushion that a rise in interest rates of say 8% is doable then I would do it.

Assuming your incomes are 50/50 split, I would say it does seem very tight. With everything going up, it doesn’t leave you with a buffer, especially if one of you were to lose your jobs and only £50k in savings. If you’re frugal, then you can build a buffer for when interests rise. I’m assuming you’ve no children or plans for children, as that would be unaffordable, especially having that mortgage in 5yrs time when your mortgage could be 60% of your salary. Are you sure you want to live like this for the next 25yrs, little money for house items, holidays, socialising etc.? I think it seems a shame to be earning a decent salary, but having to scrimp and put all your money on your mortgage, especially if prices crash as you have little equity, it could be an albatross around your neck in the future.

We are in a very very similar situation and we’re going for it. Our thinking is that we are confident we can bring the mortgage down to £600-700k in the next 5 years with savings, investments that will vest etc.

yes it will be a squeeze and if rates rise to 7-8% we might need to sell the house! But we’re taking the risk as we want our kids to grow up in a house like that. We don’t want to look back and regret not taking the risk.

Thanks. Yes I think we’ve been offered it because of our equity.

8% would be terrifying but mathematically possible….

Thanks. Very fair points. We have a child already and spend £1000 a month on childcare. We aren’t planning anymore. We can currently save 6k a month (7k if being frugal) on our current base salaries. Our savings became depleted a bit due to my maternity leave but I’m back full time now so we are back on the saving game. On our 5 year planned fix - and on current costs (who knows where everything with energy etc will go) our outgoings will increase so we’d be left with 3k over a month to save/ overpay into the mortgage plus we’d put in our bonuses to the savings/ overpayment bucket. For these calculations I’ve budgeted for two holidays a year + budgeting a bit more for presents then we spend at the moment.

These figures are way out of reach for me but it seems mental. What would your monthly mortgage payment be in comparison to take home pay? I've just run it through a basic calculator with the figures you gave and I'm guessing you'd have about 4k left after mortgage. Which is obviously a huge amount of money but once you factor in (also presumably huge) council tax and energy bills, plus childcare, vet bills, pet insurance etc, will you have enough left for a reasonable quality of life? Also on those salaries your social circle are probably high earners, would you find yourself left behind when they want to go out or travel?

Super helpful to hear! The regret point is one that resonates with us - the garden at the other house offers everything we could ever want - we can play football there, put all sorts of outdoors equipment there etc and it has a swimming pool etc.

where are you investing? All our investments have been in shares which are doing terribly!

our aim would be to bring the mortgage down to 880 in the 5 years, assuming no help from anyone or gifts etc (husbands family are well off and have mentioned helping us in the future but have quite a few projects on at the moment but it’s always a possibility: hope!)

thanks for running numbers.On the fix we have agreed, our mortgage will be 4k a month (we pay 2k a month at the moment which includes a monthly overpayment). we take home 12k a month net. It’s not so much the next 5 years I’m worried about but after that if interest rates are really high and the economy implodes….

Oh and we have a mix of friends in terms
of their income and since we have a little one we do more casual things now and don’t go out a huge amount. We aren’t that fun!

im amazed you’ll be able to save £3k a month after mortgage costs, paying £1k in childcare and two holidays a year! Are you taking out the mortgage as interest only?

If you do it and are planning to stay put in that house why not fix for ten years to get the peace of mind?

One thing to consider is the increased costs of running a larger house. Council tax, energy and maintenance bills will all increase. We recently moved from a flat to a good-sized detached house and the additional amount going out every month over and above the mortgage was quite a shock. We don’t regret the decision though.

I think house prices will fall especially the more expensive ones. Wait till spring next year would be my advice. The winter will be a crunch time for many money wise and job wise

@Pogpog21 we’ve got a lot of shares in our employers as part of variable compensation which you have to keep for a number of years before you can cash them out…

our investments have done really badly but we’ve had to divest and accept losses so we can be in a position to complete on the house.

I still can’t see how your payments are 4k per month on a mortgage of 1 million? Based on my own mortgage, much lower than yours but rounded up, I would have expected you to be paying 6k minimum- and that is going on having a high percentage of equity to value, which you don’t have.

Here is an extra point to consider - do both of you need to keep working to afford this? Looks like it.

That can be pretty stressful - not just from the losing job perspective but also feeling trapped if you hate your job. If you’re on a treadmill you may find you can’t easily get off as you need to keep earning a lot to service the mortgage.

We’ve fixed at 2% for 35 years.

Yes we would. In current house one of us could stop work and it wouldn’t be a huge issue.

If you’re taking £12k a month home, that would indicate you’re not paying anything into a pension if you’re on £200k a year? Have you thought about investing into a workplace pension as that would make a huge difference in the future for you, especially if you’re going to be paying off a mortgage until your mid 50s. I’m not sure where you live, but I do think £3k leftover is optimistic and a little tight, especially with little savings and pension. We are in London and have seen house prices falling quite rapidly (especially around the £2m mark), so I’d be wary of a huge mortgage with little equity and falling house prices. If you’re happy to be a bit more frugal then I think it could be manageable. We have a child (no dog!), and are looking for a similar move (i.e., final house circa £1.5m+. We’ve decided to hold on for a bit (also we may have another child), and see what prices do. We would put our maximum mortgage repayments at 35%, ideally 20%, and 60% ltv. I think it might be different out of London, as we love being out and about and want the disposable income to do what we want, I think if you’re planning to be in your house the majority of the time, it might not be so bad. Good luck with whatever you decide!

“I’m worried about but after that if interest rates are really high and the economy implodes….”

If you are worried, you’ve answered your own question imo.

Will it be a forever home? It may be worth 1 mil right now with inflated house prices but is it really? Houses here have gone up ridiculously high, but a lot need work and once you factor that in if you wanted to sell and profit I don’t think it would be worth it-the value has peaked.
How safe are your jobs?
Could family bail you out if the shit hit the fan…
Will you have adequate insurance to cover any accidents/loss of life/illness etc.
I’d never want to take on more than one salary could cover if absolutely necessary- but I’m a worrier!
What if you require new cars?

Could you see a financial advisor?
Good luck to you!

This works out about 4200 on a 2% interest rate

so you clear 12k net a month, 5k expenses including mortgage and childcare and can save 3k - are you spending about 4K a month on bills and living?

1m is a scary figure with interest rates going the way they are but as long as you think your jobs are secure and your expenses won’t increase much beyond what they are now it’s clearly manageable on your salaries - presumably you will try to pay down more than the repayments before you next re-mortgage and guessing your childcare costs will reduce/disappear before your fix is up too?

Just seen your update, I would definitely try and reduce to 25yrs if you’re in your 30s. You are unlikely to get a lower interest rate than this in 5yrs, so try and pay down the capital now. You’d pay back over £60k in the 5yrs more than on a 35yr mortgage. On a £1m mortgage over 25yrs at 2% the repayments would be £4200, so not much different to what you’ve been quoted now.

I think she said house was 1.8m so if 1m mortgage they’d have 800k equity