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?

Are you including bonuses into your monthly net income number? Otherwise even with zero pension contributions £100k each is most tax effective split and that gives £10.9k between you… so would expect it to be sub £10k after pension.

if work to basic calculations if you can.

Do you plan to private school? What about new cars etc?

we are on higher salaries but lower equity (about £300k in current house) and I don’t think I could swallow such a high mortgage and long term but appreciate I’m quite risk averse.

life can turn on a sixpence but I guess if you make peace that if it all went wrong you would sell up & downsize then maybe not so bad after all…

Hi OP, we have a similar family income and took on a c£950k mortgage last year, our mortgage payment is about £3,300 a month and fixed for another 4 years.

Planning to pay off lumps over the next 4 years to bring the total down for when we re-fix (worried about that but what will be will be).

When you move it always feels like a stretch. In 5 years you will be earning more and have more in shares etc if your careers go well which will make something that feels a stretch now, easier.

Good luck! Enjoy your new home!

Do childcare costs go down? I was hoping this, but my friend who has older children than me said with after school clubs/wrap around care, holiday clubs, school trips, more expensive clothes/technology, more food, etc., that I should enjoy the nursery years whilst I can!!

P.s I would have jumped at a 35 year fix at 2% and we had £625k equity!! Where did you find that deal?

I wouldn’t. I value security (I mean the financial kind).

It always feels as though we could do with more rooms/bigger garden. I’m sure most people with kids and pets feel that way. I certainly do. But unless your current property is tiny, you could probably do some space efficient reorganisation, get some built in storage to make use of every nook and cranny, spend some money redecorating to make it exactly how you would like it. You would be so much safer financially and you could take nice holidays. Also, I’m assuming the new property would be pretty large and the outgoings would be hefty. I don’t think £230k salary would be enough for what is essentially a mansion with a £1m mortgage and the associated lifestyle. I don’t think Id sleep at night with a £1m mortgage. It just sounds terrifying. I am pretty risk averse though!

If your nett take home is 12k and your mortgage is fixed at 4k that leaves you with 8k leftover? That's quite comfortable depending on the lifestyle you're used to. I think you'll be fine and I'd go for it if you really like the house.

I’m not at your price point but my mortgage is 5.25 x salary, equity is just over 50%.
I’m skint with it until DD is at school due to high childcare but then it will be fine.

I can’t see how wraparound care and clubs can cost £12k a year. DD’s nursery is £1k a month, wraparound care will be £150. There’s absolutely no way it’s going to be more expensive in school.

I bloody hope so as ours are currently 1758 a month!! (2 kids not even close to full time)

We’ve fixed at 2% for 35 years.
Who offers such a great deal?
Agree with PP to change to 25 years and is this a repayment or interest only mortgage?

FWIW many years ago in the mid 1980s we bought our forever home and needed a mortgage of £100K. Our solicitor was aghast 'do you really want such a high mortgage?'. Within a year he was telling us many of his clients were asking for the same high mortgage. A word of warning though, as we were stuck with the 15% interest rate soon afterward. Good luck in your new home.

That’s good to know @Thursday37

Unfortunately wraparound care is much more expensive here! As well as holiday clubs, etc. at the moment nursery give them all their meals, so it works out quite well. Their clothes and toys are cheap, and no expensive school trips. I was thinking more uniforms, more expensive clothes and toys, more food consumed, more expensive holidays (full price plane seats and extra rooms!). For me, I don’t think the costs will be that dissimilar as I’ll need more expensive wrap around care - nursery is currently 8-6 and I do a four day week.

I think the OP means the mortgage is 2% for 5yrs over a 35yr mortgage term (rather than the usual 25yr).

@Pogpog21 We’ve fixed at 2% for 35 years.

Wow that's a fantastic rate, are you in the UK?

I'd go for it at those rates. Also if you got into difficulty the bank would almost certainly let you switch to interest only? Do you mind sharing who the lender is?

Yes I think she means this too - 2% fixed for 5 years but a 35 year term

I do a 4 day week too, nursery is 7.30-6 including all
meals.
Wraparound care for us is £14 a day for breakfast and after school including tea and that’s before the tax free taken off but we won’t need breakfast club for 3
mornings. I can’t see DD needing £850 a month in extra food and clothes and holidays. She’ll actually need fewer clothes as she gets through 4 sets a day some days at nursery and uniform isn’t that expensive. She may have more expensive clothes but she won’t need 30 tshirts like now.
I do think those with school aged children rather like to exaggerate. Teenage boys eat a lot but it’s still cheaper than nursery costs. We will need to pay for up to 4 weeks of holiday clubs as the other 9 weeks we will take annual leave for but that’s still less than 1 month at nursery.
Holiday costs for us won’t change much at all, we always have a 3-4 bed villa and drive rather than fly so that is the same as now.

The expensive thing will be DD having her own pony, for
now she shares mine!

Thanks @Thursday37

thats really good to know. At the moment I’m condensing my hours into 4 days which isn’t really sustainable so will be getting cover for the five days both morning and evening, ideally a childminder/house keeper to do meals and cleaning etc, so will probably be spending the same if not more until they’re old enough to get home from school by themselves. I’m pleased to note that the food budget doesn’t go up too much as it’s already very high!! Summer holidays I’m not so worried about as we tend to do villas, or drive to my parents place in France. It’s more the skiing etc!!

Yes sadly so!

Personally I wouldn't. 35 years! Don't you want to retire? I'm almost 50 and my mortgage will be paid off this autumn. It's a great feeling. We could have bought a far bigger house but I'm looking forward to being able to enjoy life in 5 or so years time

I don't think a 1m mortgage with your salaries & almost 50% equity is crazy

I wouldn't do it in the current economic climate. Not at that high a proportion of your income.

Similar income here and absolutely NO WAY I'd do this. Our mortgage is tiny and that means we have freedom to quit our jobs for a bit if we need to, save a cushion and just generally sleep at night without financial worry.

Our house is a very modest 4 bed semi but we know it's safe and secure. A bigger house isn't necessary and won't make you happy, after basic needs are met it's just all about keeping up with the Jones isn't it?

Financial pressure can bring ppl to very dark places, don't do it OP.

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

Same!

4k of 12k is fine.

Sorry to have caused excitement. It’s a 5 year fix at a 2% rate but the entire term is 35 years.

our plan would be to overpay as much as possible so it wouldn’t actually be 35 years.

i used to earn more but took a different type of role - in theory could earn double what I do now if I decided to go back to very long hours but am hoping that progression in my new track will lead to a salary for me of 200k alone in the next 5 years and ultimately 400k if I got where I currently aim to be.

but if we stay where we are I can plod along and as another poster said, could take time off or a complete career change if desired.

If it's repayment and your monthly mortgage payment is 30 percent or less I might do it. But do factor in all the additional running costs, insurance, utilities and maintenance costs. People often seem to forget that things regularly need to be maintained both inside and outside and go wrong - electrics, roofing, new boilers, paintwork etc. A big house means big bills (and a tradesman premium if they see how much you have).