Family income 120k - would you borrow 400k in today's climate?

[hophapjoi]

Have to move and already have an offer on our current property but mulling over our options and have slightly different takes on it. We are both in our early 40s and joint income is 130k - and have found a property that we could live in long term (though it is a two bed so wont ever be able to downsizes) but that would need borrowing 400k. The bank will lend us up to 530K but that seem insane in the current climate. However, DH thinks that 400k is doable for somewhere we'd plan to stay indefinitely. Am feeling very nervous. We do live in London where things are expensive but both work in the public sector so arent expecting massive salary increases any time soon despite today's announcement. Are we crazy to be borrowing 400k on our salaries in the current climate?

Simple answer yes. We have a similar income and chose a cheaper house to be able to be mortgage free, bank offered £560k we borrowed £180k. Ok not london it our prices aren't far behind, plenty of £1m places around here. Paid off my mortgage just shy of my 59th birthday due to hard work, overpaying in the good years and not overstretching

We have a family income of c.200k and a have recently taken out a mortgage of 600k. Late 30s. It does make me feel sick. But it is a house we want to live in forever, and the younger you do it the better. It’s less about the amount you borrow and more about a) the amount of equity in your home and b) the cost of repayment and c) how long you intend to be there. Could you afford 400k at 10%? Do you have a decent chunk of equity to protect you against negative equity? Is it a long term investment? All of this matters.

It depends how much you earn after tax?

How much is your deposit?

And yes I think it’s easily doable as unfortunately if not then you’ll be paying someone else’s mortgage for them no doubt if in London!

What is your current living situation? Do you already own a property? What's your take home and the mortgage repayment?

Also - although you may not get significantly higher pay rises in the public sector, you also have far better job security.

Nope! No chance.

In my day a joint mortgage would go to 3.5 x income. In my day, that raised me £49,000! And I was then stressed tested with 14.9% mortgage rates. It was tight but I got through. So I reckon if you go 3/3.5 as you will with this, it'll be ok.

Our existing loan is 300k - and we try to put aside 2k per month for mortgage but it's on a lower rate so feels a bit better. Our take home is 7k and mortgage would be exactly 1/3 of that. But it will be our forever place - so wont plan to move again.

There will always be people advising you not to borrow more than a fiver, as they bought a house for 50p back in 1983 and paid it off early through hard work and self-denial. But realistically, if you want to buy in London, where it's often not an option to just find a cheaper house given supply and demand, you have to be prepared to borrow more. Your figures sound fine to me if you can get a doable mortgage rate. As recent events have shown, the interest rate is more of an issue than income multiples.

We did similar, similar income, slightly younger, licked in 3.38% for 5 years late last year. Mortgage started in March this year.
We live in an expensive area (Winchester) so had no choice.
We simply felt that our area is so strong so value will hold plus we are public sector but expect pay to go up as there is a ladder to climb and dh is part time due to his studies.

If you need to move you need to move 🤷‍♀️ We moved in April and found the banks very very cautious about how much they would lend. We had to do all sorts of silly things like extend the term to a very long one to be able to borrow 200k on a joint income of 70k.

If the banks will let you borrow that much right now then you’re probably fine. As I said they are being very cautious.

Our take home is 7k and mortgage would be exactly 1/3 of that. But it will be our forever place - so wont plan to move again.

33% is the exact criteria of salary to rent in London as the maximum most agents will allow.

For a family home, long term, and for the sake of happiness on your income, I'd go for it.

If you have any doubts about whether your roles are likely to be culled during a recession whatsoever, think twice. But even then, it's better than it ever was. Being able to extend terms. Taking mortgage holidays. Lenders not being able to take reposesion steps until 12 months after the first missed mortgage payment. These don't seem to be pie in the sky promises either; the government actually got a bunch of lenders to sign a document.

Check the names on that document against potential mortgage lenders, if you're nervous.

Your figures are just over our household income and just under what we borrowed back in September. I felt comfortable with it - again, bank was offering an extra 100k which felt insane! - but this was pre mini budget and interest rates going up.

So long as the bank is happy and you've stress tested I think it's sensible.

Is your household income balanced? DH and I earn almost exactly the same so I think I feel less stressed because if one of us lost their job then we could probably get by for a while with savings etc, although I appreciate mortgage being 60% of household income would make for a scary few months!

@ShadowPuppets thanks, interesting to hear. Our income is completely balanced which is a tad scary but it also means that it's not a case of DH losing his job and us having no money. We will also have savings that should cover us for a year if needs be.

Our income is the same and we've just borrowed 400k for an 800k house purchase. We're not in London, and in a part of the country where we could buy a decent house outright with our 400k deposit. But we wanted a beautiful forever house, and are happy to pay a larger mortgage for it. You need to spend your money on something, eh?

As long as you have some savings for emergencies, a sufficient insurance product, and are on track with pension planning, then I would go for it. Your home is where you spend most of your time, after all.

Watching

Yes, as a single parent I have taken on about the same. It's expensive and challenging but I want to stay in this house for many many years and so I will make it work. It would be more expensive to buy smaller and pay tax and fees more than once.

I thought that was a normal amount to borrow, but most people have much lower salaries and do it because rents are so high it's a better risk/ option?

I would be ok with that, you have a lot of job security and probably decent pensions so you won’t necessarily be worrying about putting extra away for that. Also rates won’t be this high forever. If you don’t want to leave london you don’t have much choice really.

If you're happy with your stress test scenarios then go for it. I would arrange some income protection cover though. I think we are in for a bumpy economic ride over the next few years.

You say have to move, I have a friend that is relocating due to work about four hours away and that is a have to move scenario. Is it really a have to move or a want to move situation.

I assume as public sector you have a decent pension, sick leave, death in service benefits.I haven’t watched it yet but Martin Lewis Smith was on tv a few nights ago talking about mortgages. May be worth a watch and look at affordability and what your life would be like in that worst case doom and gloom scenario for mortgage holders. Then look at what your life would be like.

As long as you will get decent pensions then I probably would but no opportunity to downsize is an issue in retirement although I presume you could just move out of London if you needed to release some capital. However, warning ill health can hit you in your 50s I have work part time due to my health and I was fine in my early 40s. I have other friends in similar positions. I will retire early once mortgage paid off in a few years and will downsize soon after.

Personally, no 🙈 We have £450k on our mortgage, a household income of £225k with the potential of £240k if I increased my hours back up to FT and it’s already giving me the heebie-jeebies about remortgaging at the end of next year.

Yes, we are about to do the same...well if we can find the right house but that is a whole different issue.

Middle class, but not middle class enough for a financial adviser?