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?

A few years ago I might have said yes, but I wouldn't at the moment with the way the economy is going. 5 years will go quickly and then what? We have been in our "new house" for 4 years, it's flown in. Can you afford the mortgage at 5-10%, especially if the cost of fuel, food, goods etc continues to rise?

You've said you can work move to a higher paid more demanding role, but what is the point in having this house if you're working so much you're hardly ever in it? Or so stressed you aren't in the headspace to enjoy it.

I would probably take a few years to pay off my current mortgage and see how things are then. Or I would probably work less hours and just enjoy my hobbies and having a few more laid back days when DC is at school and days together when they are off, but I appreciate that that's a personal choice.

What about your pensions?

Friends hot tub in new home was £600 she calculated it's been switched off. I wonder how much a swimming pool is?

my husband and I are on base currently around 250 plus bonus - early 30s
we just took out a mortgage of just short of 700 which feel likes a lot to me with much less equity - about 20% equity. it’s a fixed upper project so initially expenses are very high but hopefully it will pay off with property price going up eventually

it’s probably not a forever ever home for us, but possibly next 10 + year but to me I feel this is a stretch even though we have surplus each month (mortgage is just under 3k and net income about 12k with pension conts so not too dissimilar)

I still do worry about it a little tbh with the cost of living crisis and potential for house prices to drop, but then I’m risk averse and worry about a lot 😅 - my husband was a driving force for the purchase and I’m glad we have it as it’s a beautiful home that I think we’ll enjoy it over the years

I would also like to take my foot off the gas in my career ( too stressful for me and that’s without children!) but I expect my husband to accelerate so hopefully it will balance out and ultimately we could afford it on one salary but it would be tighter for sure - that's why we basically got a mortgage on one (plus a bit more) of our salary rather than stretching it.

however it sounds you are very career driven so providing you won’t want to step back it should be affordable and if you were willing to loose some of your initial equity investment (in a worst case scenario) you should be fine

also if this is your forever home you won’t be paying extortionate stamp duty again (fingers crossed)

best of luck and let us know what you decide!

I think if you are sure you have done your budgeting properly, have REALLY thought through your priorities, and are sure you can still manage at 8% then go for it.

I would just echo what others have said about pension though. At your age I would expect you to be paying at least 10% into a pension, plus an employer contribution, but you don’t seem to be paying anything.

Personally, I earn mid 200s and am currently balking at the idea of adding £200k to my mortgage to take it up to £300k, but then I have different priorities (school fees and then uni, helping children into the housing ladder, maximising pension for possible early retirement etc)

Are people seriously suggesting that people paid £6000 for a hot tub and then don’t use it because it cost £600 to run, like really ? Makes no sense.

Personally I think your home is one of the best things that you can invest in and I’ve tried to downsize I’m not particularly happy and will be upsizing again as soon as possible.

It's all relative though isn't it? On paper the new mortgage I'm taking out is 4 times my gross salary. It'll be a colossal figure for one person (I'm a single parent), but I don't have much choice as my and my DC need a home and within walking distance of school is one of my must-have criteria, which comes with a hefty price tag.

I've accepted that I can't have the expensive house, nanny and private school fees even though I'm a high earner, so have put private school on the back burner until DC reach secondary, and included the first two items in my budget as I work full-time.

If I was in your situation I'd probably go for it, purely because you have so much free cash after the mortgage payments, so can choose how to spend it, large overpayments being one option.

How does it make no sense?
It's easy to justify one-off capital expenditures, but not ongoing costs.
I've bought expensive exercise equipment which has paid for itself several times over. Saves on time, gym fees and travel costs especially as fuel is £££.
Similar concept applies.

Also.. people end up not using the stuff.. it's a novelty then sits in the corner.

To echo others, what’s the state of your pension/ISA savings? We have an even larger mortgage (but on a very valuable house, so LTV a bit better) but also have healthy pension pots. We don’t regret making the move to the perfect house for us.

How is your net 12k a month if your salary 200k?
That's 144k net pa which is an effective tax rate of 28%? Are you self employed? Do you not pay NI? Pensions?

Missed the point of the thread completely

It’s 2 people on £100k each, therefore more tax breaks at the lower rates. Not one person on £200k

We have a very similar base salary to you, but DH's bonuses are multiple times the size of yours. We also have a similar amount of equity.

There is no way on this earth I would be taking out a £1 million mortgage. We're planning to move soon and despite knowing we could be offered a lot more, we've set our borrowing limit at £600k (so a £1.1m house). Huge houses do not equate to happiness- I want more space but also stability- especially with the economy going to the pan, interest rates on the rise etc.

I do understand the temptation, I really do- it's hard when you know you are 'allowed' to buy somewhere. Definitely doesn't mean you should.

I’d go for it as long as you can also make large pension contributions, you can always downsize.

How's your job security? Regardless of current income there's a recession looming so I'd really consider how stable my job is first.

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?

It's pretty unusual to calculate a mortgage like that, most people need two incomes to buy a house.

You’ll be house rich, cash poor.

with 8k a month left over?

I agree with this. We could have a bigger house than we do, but instead we will be going part-time early, and working towards a pretty early retirement. Life is about so much more than having a massive house.

Do you have children? If not is having a family part of your future plans.
Make sure you factor in future maternity leave, part time working as a parent, child care costs before school etc.
Interest payments are obviously low right now, the average since the 1970's has been around 7%. If you factor this into affordability then you will be able to ride the fluctuations.
Do you have the ability to make overpayments or can you take on an offset mortgage so if you have money available you can make it work for you by reducing interest and the lumpsump faster.

I don't think a 1m mortgage is crazy in itself, on the incomes you have. For most of us a massive mortgage and some degree of real risk is the only way we'll ever live in a nice house.

But what about house prices? We're looking in a vague/speculative/drawn-out way at moving and so I've had my eye daily on Rightmove for about a year (west London). Lots of price reductions in the last few weeks, agents sending out emails about the softening market, apparently fewer other buyers /competition at viewings. So, personally, I wouldn't upsize now. The price difference between your current position and desired house will end up being less than 1m as the market drops.

No, I wouldn't! We take home about 125k between us but I wouldn't take a £500k mortgage

If you tie yourself to a huge mortgage you also tie yourself to the job that pays the huge mortgage.

You don’t know where life will take you or how your priorities or interests will change over the next few years. Happiness lies in having freedom of choice. You are removing choices by saddling yourself with an unnecessarily huge financial burden. What if you fancy a sabbatical to travel, or want to go back to university, or simply want to take your foot off the pedal and go part time for a bit? If buying this house means you can’t ever deviate from needing to earn a certain amount, then you’re limiting your life enormously. Why would you do that to yourself?

It’s all different strokes for different folks of course but as someone also in their thirties I couldn’t imagine anything worse than sinking all my money into bricks and mortar. Life is for living, not for paying off debt you don’t need to have in the first place.

You don’t know where life will take you or how your priorities or interests will change over the next few years. Happiness lies in having freedom of choice. You are removing choices by saddling yourself with an unnecessarily huge financial burden. What if you fancy a sabbatical to travel, or want to go back to university, or simply want to take your foot off the pedal and go part time for a bit? If buying this house means you can’t ever deviate from needing to earn a certain amount, then you’re limiting your life enormously. Why would you do that to yourself?

Surely this is true for anyone taking out a mortgage? And most people in their early 30s don't have anything like 800k of equity.

It shouldn’t be, no.

I don’t think anyone should take out a mortgage where the cost of repayments don’t allow for flexibility or changes of lifestyle.

Far too many people are mortgaged up to the hilt and trapped as a result.

It’s no way to live in my view!

@Pogpog21 I would do this and have done something similar.
In 5 years sounds like you will have paid down a bit and can reassess again. Counter argument is sit on the cash and allow it to build up to go in with even greater equity. But I think in your earnings situation I wouldn't wait as you're only really delaying.

I don’t think anyone should take out a mortgage where the cost of repayments don’t allow for flexibility or changes of lifestyle.

Most 30 somethings can't even get on the ladder, let alone only borrow a tiny amount to allow for future sabbaticals! the OP still has more money left over after the mortgage payment then the vast majority could hope to earn.

Far too many people are mortgaged up to the hilt and trapped as a result.

I suppose our definition of trapped is different. The OP has significant equity/deposit & will be able to overpay for 5 yrs. She could always sell & buy something outright