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?

What happens if one of you looses your job? Has an accident? Illness? And of course interest rates are rising.
Whatever you do both get life insurance. My normally sensible husband's life insurance did not cover our £1.25m mortgage and I had to sell the house immediately. I had to buy a house half the size in a cheaper area. It was a huge upheaval at the very worst of times.

Personally I wouldn’t do such a large jump in such dicey times. I’d go for around 1.4 house. Half way house, not quite so crazy.

Pay off as much as you can in 5 years as per the current plan, then see how the market is. You could potentially move again depending on whether the economy/your earnings have gone well/badly.

i wouldn’t want that kind of financial pressure, I would worry about life changing, losing a job, another baby, illness/disability (it happens, I was dx with Multiple Sclerosis completely out of the blue at 40, never dreamed for one moment that, that would happen to me).

I would say is you need to live as well, no house will make a happy home, if you can’t afford the other things that helped you to enjoy life, such as holiday, meal out, day trips with the kids etc.

good luck with whatever decision you make, but take out critical illness protection & life ins because you just never know what’s around the corner.

@easyday so sorry, must have been so difficult for you, having to move at such an awful time

I’m sorry to hear that - I hope things ease up.

I’m so sorry to hear this. 💐 I can’t imagine how tough things have been for you - I hope you settle into your new area soon.

We both have good life insurance (would cover the mortgage). I have critical life cover through work. DH has his own business so doesn’t have critical life cover but we could get it.

Seems ok to me. If you're on £100k each early 30s, I bet one of you will be on +£200k by 40. Buying a 'half way house' would be a huge waste of money.

I think that’s like 99% of the people in the world theyre chained to the job, at least you have the caveat that you love the house imagine the scenario where you don’t and you’re still chained to the job.

Thanks - 1.3 was our original budget on this basis but things just got so mad that 1.3s weren’t offering a huge uplift. That might change if the market cools now (although that will impact our house price too).

Thanks - a few people have quite rightly mentioned pensions. Husband is relying on significant inheritance (2-3m) so is very lax with his, he only has a very minimal amount in his so far. I only have 100k in my pension pot at the moment. If we don’t move now or decide to go for a more middling upsize this was going to be my next priority but i had thought we’d enjoy the house and likely downsize to get a big chunk of retirement funds in the future.

in terms of figures for more clarity our take home is 7.8 + 4.3 a month (pre bonuses) - a cash allowance forms part of that.

Both DH and I are risk averse so went for the smaller, more manageable house paid off and pensions stuffed by the age of 40, plus I like a healthy cushion of savings.

Which was fortunate because our industry crashed and we were pretty much forced to take early retirement instead.

In your position I would definitely be maxing out the pension contributions to benefit from the tax relief.

We went for the equivalent of the middle house and prioritised pensions. We retired mortgage free at 52 and 55 with a massive pension pot. We didn’t however expect to inherit a couple of million.

Again, being cautious, I wouldn't factor the inheritance into anything until it's sitting in your bank account. My uncle had his 1m inheritance wiped out by the 2008 financial crash.

I'm not sure how the inheritance is structured, but is there a chance it could also be used for care home fees and the like in his parents later life?

Yeah never count on an inheritance. Mine was due to be 1.5 after IHT. Now if it scrapes 500k I’ll be lucky.

If you’re in your 30s your parents are likely in their 60s. So you’ve got 20-30 years.

I wouldn't personally. Illness, divorce, another baby, wanting to be a SAHM... there are many reasons why not. Be content with a mid-sized house and enjoy your life!

Also, pools are bloody dangerous and need a lot of maintenance (I used to live in a house with one).

I wouldn't count on all of the inheritance because of care fees & likely changes to IHT. However it's unlikely out of 2-3m there will be zero

What if his parent(s) live until they're in their 90's? Or if you get divorced before he comes into his inheritance?

Now if it scrapes 500k I’ll be lucky.

An inheritance of 500k is pretty lucky in my book!

I took out a 5xgross salary in 2003. I was in my late 20s, single and really wanted to get on the property ladder. I had a 5% deposit.

Decided to buy a 2 bed flat, as I thought I could always rent out the spare room of things got tough. Interest rates were about 3.5%. I was in a fairly stable profession (though, like all professions, it was hit by redundancies, so by no means bulletproof) too.

At the time, I was advised not to do it by many people, who were concerned about the area, the amount of lending, the gearing etc.

It was the best thing I did. It made no money at all for a couple of years which didn’t bother me at all as I didn’t want to move.

I'd love to know what you and you partner do to earn this amount of money!

I know.

Really check through your budget again. As pp have said maintenance will be high. Is it a new ish house or something period? If you buying an old house is it fully "done" and renovated or are you likely to need to replace windows, roof, kitchen at some point in the future. A 1.8 mil house be expensive to maintain and refurb. A large garden is also costly. Will you be employing someone to keep it up? You will spend some thousands a year on lawn mowing and maintaining, cutting back shrubs twice a year, hedging a fortune, any tree work is a couple a grand once in a while. If you get keen on gardening you can create something beautiful without spending a fortune on flowers but its a lot of work to buy in tiny plug plans and bring them on or grow from seeds. Or you can throw money at it and buy established garden ready flowers each year but you could easily spend thousands on it each year.

You just need to be sure your income of safe. It sounds like your DH is from a wealthy background which is already subsidising you. With that info I'd say you have a safety net so go for it.

Don’t rely on inheritance for pension. Literally anything can happen, from the money being spent, to being disinherited, to just not receiving it when you need it due to the benefactors continuing to live.

If it came to it, you could sell the house, move to somewhere significantly smaller and out of London, and use the equity. Its probable that property would continue to outperform other investments over the long term, although it might not offset the lost tax relief.

I assume you have had good independent financial planning advice?

I don't think these days there's any such thing as a safe job. Jobs for life aren't really a thing especially in higher paid roles.

I'm divorced and late 50s so don't have the luxury of saying 'what happens if one of you loses their job' - I have no back up plan if I lose my job that someone else's income will shore me up.

Last year I moved and took out an additional mortgage of around £200K on top of £800K equity (London prices). The payments went up as a proportion of my income to about 28% of income and I had 10 years to pay it off - taking me to the age of 67. I investigated income protection/redundancy insurance and it simply didn't exist. It was the height of the pandemic and furloughing but I'd be surprised if there's much available now that's affordable. I lost my job in September. I sort of realised it was on the cards but I'd taken the risk and still chose to buy somewhere more expensive in the area I wanted. I loved the house. I could've bought a bigger place in a less nice area and not increased my mortgage or even had one at all.

It was scary but I plugged away and ended up getting a really good job after 4 months later - which paid £55K more than my previous job. I was very lucky and had reserves to cover my mortgage payments for 10 months.

I knew I was taking a risk when I bought but I had faith that I could make it work and if necessary would have explored taking a mortgage payment holiday, transferring to interest only or selling up. In the end I didn't need to do any of those things. But I was cautious about the size of place I bought because of running costs and maintenance - these are much less than my previous home.

£15 a day for breakfast / after school club (ours is actually slightly more) = £300 a month for 40 weeks of the year (assuming you and your partner can take 6 weeks holiday each back to back to cover school holidays) = exactly £12,000

personally i've found the cost of a child to increase not decrease after nursery