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 went to 4.5 times my salary, but was buyer on my own, so less risk. I actually think sticking with the 35 years is better as you still have the ability to overpay, but it gives you more breathing space with the amount you must pay. Questions to ask yourself are

• Do you have income protection insurance for loss of job with possible redundancy or medical issues? If so, will the monthly pay out be enough to continue with the mortgage?
• You don't plan to have another child, but would you be able to afford it if you have an unplanned pregnancy? Or be willing to have a termination to prevent that.
• Are the bills and council tax affordable?
• Will you be considering private education, expensive hobbies etc as your child gets older?

To me it's an eye watering amount, but I earn considerably less, so it's all relative.

Total madness. Similar-ish combined salary and bigger deposit and no way was I going to borrow anywhere near that much money!

You can do this is if being at home is the most important thing to you as a family. Bear in mind though that as children grow up hobbies, holidays and experiences outside the home become more important.

Income-mortgage ratio wise i think it sounds okay. But as some pp said, the maintenance will be higher. I have a friend who bought a big house with 4000 sqr feet, his utility bill last winter is over £1k, we are not even talking about drafty old victorian mansion, this is a newly renovated 1920s house.

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.

This is us too. We have a similar income and have been looking to move but looking at the houses we could get whilst taking on a 400k mortgage, the nicer house doesn't outweigh the advantages of having a small mortgage and no financial worries. I couldn't imagine taking on a million pound mortgage, admittedly we have less equity and are a bit older.

Do it. We took a risk on a house years ago and have never regretted it. We spend a lot of time at home too and WFH and it was brilliant in lockdown. It’s huge and rambling and we love it.

Bear in mind that bills will be high, our gas and electricity is £600 a month, council tax is £400, insurance is £350. Also bear in mind that will often host as you’ll have loads of space but as long as you’re ok with that it’s fine.

Also, you’re young! It’ll be paid off in your fifties

Do you have income protection and really good health insurance and critical illness cover? What's the plan if one of you gets sick or made redundant and struggles to get a new job?

I am risk averse so it wouldn't be for me, but if I were going to do it I would want ALL the insurances.

I assume you have factored in the increased running costs of the bigger house? Heating, council tax, etc? And maintaining a house that size- especially the garden- you might need to employ someone to do some of that. Also, house prices up at that end of the market tend to be very volatile, and they also tend to be very individual so difficult to value - do make sure you get more than one valuation on it so you can be confident you aren't buying a pup.

Maintaining the swimming pool will cost £££ too. I think it's madness.

I work in mortgages we offer 5 times income for high earners. It sounds scary but in your position you'll still have £8k a month net after the mp plus annual bonuses
Good lump of equity in the property and £3k left every month even when accounting for a couple of holidays
I'd go for it. Probably look at sticking an extra £1k a month on the mortgage as overpayment and chucking any annual bonuses at it too especially in the next 5 years to help if rates are a lot higher at the end of your fix
Yes the term will take you well into your 60's but overpayment will shrink that and you could easier downsize at some point too
I'm not a Mortgage Advisor by the way lol I'm in more of a credit audit role at the moment but on paper it looks OK to me and certainly one we'd say yes to

I have a higher household income than this and would never dream of it. Being high earners gives us the comfort that we could go down to one income and not worry. And particularly with the cost of living situation at the moment I wouldn't entertain this for one minute

im suprised you’ve been offered such a large mortgage. Our mortgage company although accepting our joint income, calculated affordability based on potential of just one earner. I.e if one of us was unwell or lost employment could we still afford everything on a solo salary?
as it happens this was a wise decision as it’s meant that I could take a sabbatical. Might you want another child in the future?
have you got enough for school fees? I imagine with the lifestyle your describing school fees might be a given?

We stretched ourselves to buy the house we live in now and I go back and forth every day on whether I’m happy or not

Posted too soon!

Our house was £1.1m when we bought and probably £1.5m now, we have £200k equity. Similar combined income to you. On the one hand I love the house so much, perfect place for kids to grow up. However since having our first child I now completely chained to my job and I find the weight of responsibility frankly quite suffocating.

You’ll be house rich, cash poor. What do you have in investments? Pensions?

We’re not in the UK but have recently taken on a mortgage just shy of 7 figures to build our dream house (plus bridging finance which takes us over that short term).

You have 300k left on your current mortgage which you can clear in a few years on your salaries. What will you do with the spare cash then, given that you’ve still got plenty of years to work?

For us this was the decisive factor. We could happily stay in our current house and pay off the mortgage in our early 40s. But neither of us plans to retire early, so we would need to invest the cash somewhere. Stock market returns are unpredictable. We’ve had bad experiences with investing in holiday homes and rental property. We are not ones to live an expensive lifestyle with flashy cars, designer clothes etc. So we decided we would invest in a home which the whole family can enjoy for years to come and which will increase in value and later be sold to give our kids a good start in life.

We did a lot of number crunching before deciding with best / worst / base case scenarios. We also calculated how we would cope if one of us lost their job.

Current interest rates would worry me - we were lucky to fix for 15 years at less than 1% (18 months ago, hence the rate!) You should certainly calculate affordability at various interest rates.

Good luck whatever you decide!

I wouldn’t underestimate the cost of older children. If your child’s school offer wraparound care yes that’s cheaper than nursery but in the south east can still be £3-500 a month. Then if they have any clubs, instrument lessons, dance, sport etc.
uniforms, clothing, shoes.
summer holidays. So if you’re working do you need holiday clubs those can be a couple of hundred a week again area dependent.
also planning for uni. Ds1 couldn’t have gone to uni without help from us. So we have him £400 a month plus helped with things like sending him supermarket gift cards or arranging a while delivery for him. He worked as well. Ds2 is doing his degree with a paid apprenticeship but that’s minimal and while he won’t have any student debt he’s still needed help with things like car insurance and groceries. He can’t work as his apprenticeship included all kinds of shifts. We give him around £300 a month.

Can you still afford it if one of you can't work etc. Check your insurance policies.
Sadly found ourselves in this position we never thought would happen. The insurance will keep us in the house just *we didn't take the next step up.

Once the teaser rate expires,.you'll be stuck with a variable interest rate, now it's easy to assume the rate would not go to high, but like what happened with previous housing crashes, the rates went up, and values dropped, is it really.worth the risk ?

No idea about the house price but a word of warming about the swimming pool - they can be very expensive to maintain!
We know several people who have had them put in, and then taken out /boarded up within a few months of having them. Cleaning/chemical balance alone can be between £80 -£100 before you factor in increased energy costs for temperature.

*warning

How on Earth are you taking home £12k net on £200k joint income? Is it not closer to £10K? Which then makes the mortgage 40% income which to me is getting nervy. I’m very risk averse though and I like going places… I would never include a bonus which may not be certain in calculating income for example.

i know you’re only early 30s but it doesn’t sound like you’re making any substantial pension contributions, either.

We have a really good (although lower than yours!) household income and having worked out the size of mortgage and value of property percentage wise to ours, I personally wouldn’t touch that sort of debt. And I’ve got us insured to the eyeballs (which isn’t cheap either!)

What’s the point of having a big house if you’ve got to both work stressful jobs and won’t be able to enjoy it? You could have your freedom instead. Your child won’t thank you for prioritising a big house over time spent with them.

How big is big? Square footage, wise, I mean.

We have three kids and lived in a 4500 sq. ft. house and actually downsized because it was too much space for us. I can't imagine living in such a space if there's only three of you.