Quite simply, it would be foolish to go to your mortgage limit right now wouldn't it?

[ShortbreadBreakfast]

Hi,

A friend of mine is seriously considering doing this and I'm concerned.

Her thinking is that she is a high earner and has regular salary and bonus increases. Usually around the 10% region, year on year. She is in a stable job, but nobody knows what's round the corner, although my friend is confident they would get another similar paying job very easily if was made redundant. She is very sought after and is often head hunted.

Of course I can only give my advice, but it seems pretty reckless to me in the current market. She doesn't have that much equity built up yet apparently either, so even with the salary increases, if mortgage rates rise to Nightmare levels some are predicting, it wouldn't take much for her monthly repayments to get seriously out of control.

She's very much a gambler in life and a risk taker, but the stakes have never been this high before.

I really don't want to be that nagging friend, but we're very close and I'd feel awful if things do turn out badly and I never said anything.

Thoughts and opinions welcomed.

TIA

I honestly think unless you are her mortgage advisor or a co signer on the mortgage - it’s none of your business.

@Kingsparkle I know it isn't, but it's hard not to worry.

Point her towards Moving Home with Charlie videos and ask her if she is comfortable with the possible risks. If so, then go for it - YOLO.

When you are a higher earner you’re typically not “just” a higher earner but often have other levers to pull. For example, she if she found herself in financial distress she could cut back on things like pension contributions and other savings etc, more than the average earner could afford to.

We are borrowing quite a lot to buy our next house. It’s not our maximum but it’s more than doubling our current mortgage. But like your friend we are both high earners, both get annual bonuses, both have salary increases and have career progression opportunities. That, with other levers to pull, means that we are more protected against downturn than others. We are generally sensible and whilst it’s a risk, and it might not pay off, we are not going in blind.

I appreciate you being a good friend. I agree that meddling probably wouldn't be too welcomed by her. You have to have some trust. Two things stand out:

If she is still being headhunted regularly, even in this economy, take that as a good sign and trust her that she will easily be able to get a new job.

If mortgage rates are a nightmare: well that's always worrisome, but maybe she already has a low rate that she is porting and only the extra portion will be at a higher rate.

In addition, lenders will still stress test her. They're still pretty hot on it. If they think she's too much of a risk, they just won't lend to her.

Try not to worry about it too much.

It sounds like she's ok with what she is doing and with a regular job, pay rises and bonuses I don't see the issue. Sounds like you are letting fear overwhelm you a bit.
We've took quite a few calculated risks with property/mortgages etc and apart from occasional mistakes have paid off pretty much.
My dsis/bil are like you, never took a financial risk in their life, they are very happy but miles away from us financially though.
Not everyone wants to live in a super safe way, lots of people take risks the media and their love of scary headlines have a lot to answer for.

I wish I’d taken more risks financially. I’d live in a much bigger house with a smaller mortgage if I’d not listened to my ridiculously risk adverse parents!

Let her live her own life. Sometimes risks pay off. She hardly sounds like a liability.

You are overinvested I think.

She is an adult with a high-paid job. Presumably she can do maths. She has to make her own choices.

All you can say is 'I would be nervous to take that risk' but you can't tell her what she should do.

Plus the prediction is rates will rise in the short term - i.e. within her fixed term period.

Noone - including you - knows whether they will be up or down in three years' time.

I am very risk averse personally, but I accept others make different decisions.

she Might be getting a five year fix and knows she can afford the repayments for 5 years (unless anything dramatic happened) and then who knows where she’ll be in five years time. She may be earning so much the repayments on her remortgage then seem small, interest rates may have gone down, who knows. She also has to live somewhere!!

It's her decision as an adult. But I honestly think that rarely is it a good idea to borrow the maximum if there's a way round it.

I was pretty astonished when Nationwide offered to lend us half a million pounds when our joint salary was just under £100k. It seemed bonkers so we borrowed only £300k (still an awful lot).

I bought a house three years ago just under half of what I was offered by mortgage lender. Initial term has ended and payments have gone up 90%. I am SO glad that I played it safe, I don't understand how the stress test is accurate. I'm in my overdraft every month as it is. It's not just mortgage rates rising, but food/energy/fuel etc

You sound over-invested (envious?). She sounds highly capable and able to manage her finances.

When we took our mortgage out first time 5 years ago they stress tested our finances - not against the 1.4% fixed rate but against the 7% standard variable it would change to when the fix ended - so I’m sure the lenders will do their due diligence, especially given the risks currently

We’d need a lot more info to make a judgement, any kids, other expenses, what are the outgoings compared to salary etc etc

Oh god no! I've read some of his tweets and he sounds like an imbecile to be honest

You've just made me go back to look in detail at his tweets and he's obviously one of those weirdos you'd find on the House Price Crash website since 2000 (they infiltrate this site every time there's a dip in the economy). He's clearly wishing for a crash and is not some expert.

For context I hope prices drop or maybe stagnate for years to let wages catch up.

Interesting perspective.

Let me know one of his comments/advices that indicate he appears to be an imbecile. It would be interesting to have a discussion. I like to hear opposing views.

In the kindest possible way OP you need to back off

I'd maybe mention that bonuses aren't actually guaranteed as, for younger people who'd haven't lived a recession before, this can be a shock. Other than that I think you have to let her live her own life.

This! I’m very cautious and so wont take risks even if I know I have a financial safety net if it goes wrong. My sister on the other hand is always juggling a few investments. Shes savvy and not afraid to borrow money for her endeavours and it’s almost always paid back in multiples. her life is much ‘bigger’ than mine- bigger house, fewer working hours, more holidays, nicer holidays etc. while I plod along.

OP: does your friend earn more than you? I’m a low earner and a few times try to give me friends/ family advice but realise it’s not applicable because they are high earners and can afford to take the risk/ pay more for convenience.