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?

Inflation is your friend. RPI index stood at circa 70 in 1970 and increased to 260 (eg 4 times) by 1980 due to high levels of inflation driven by energy prices and a wage price spiral. The impact of this being a nominal 400k loan in 1970 would in effective be reduced to a real term value of 100k.

We will soon have a labour government which will give public sector pay increases and contribute to a wage price spiral. The UK is more vulnerable to energy price inflation now than in the 70s.

If you have big balls go for it but we will have a shitty recession ahead first and massive amounts of inflation.

When the housing market looks more shitty I am going to borrow as much as possible and buy the biggest house I can.

So you do have at least two primary age schoolchildren, are you moving for school catchment? Schools go up and down. Unless the schools near you are dangerous I wouldn’t worry too much. DS went to a really good primary, now in special measures and then a pretty bad High school that turned itself around in the years he was there and is now just four years since he left later utterly dire and worse than when before he was there.

Absolute madness. I don’t think you can afford that much. We earn similarly and our mortgage is about half that.

We decided not to. For now.

These comments saying a 200,000 mortgage on a 120-150,000 income are hilarious. You can’t buy anything for that.

Depends if you can be happy in a cheaper house - in our case we just didn’t find anything we wanted to buy for less (lots smaller, small garden, worse area, or needed lots of work). End of the day you would survive in a 2-3-bed scruffy flat and have lots of savings either sitting in your bank account or in clever investments - would you enjoy your daily life more in that case? It’s as simple as that.

Not at the moment. Aren't house prices meant to be falling. And not for a two bedroomed house.

I'd wait for a while and get the same house for a lot less. There are going to be a lot of distressed sellers coming into play soon. Prices for those who have to sell due to debt are going to create a downward spiral.

There is also the interest only mortgage peak from the late 90's/early 2000's gaining pace. 25 year interest only mortgages maturing with many having made no attempt to pay down the capital and now no means to do so togther with being too old to get a new mortgage, meaning they have to sell.

Those with big deposits waiting things out will do very well if they time it right.

We are actually planning on moving for an existing school, DC has been commuting for a year now and it's hard work so only moving a couple of miles. We are also selling so prices going down would hit us as much as our next purchase.

I think our positions are that I would be happy in a rubbish flat with a small mortgage but DH thinks it's ridiculous.

To put this in perspective, my family think I should borrow to the max and buy a three bed house in a naice area. Which I certainly think we can't afford.

@TheNoonBell I do understand about price falls but am assuming that our house would also drop as a result. So we would in fact end up with a smaller deposit ourselves. Plus DC would have to carry on commuting to school.

When I was buying my first property, it was in the dark ages, so I was only able to borrow about twice my salary, my dad asked me if I could afford it. I explained how I would cut back on this, and that to make it affordable. Then he told me to imagine how I would afford it, if my repayments doubled.

OP we have a joint income of about £140k and a mortgage of around £400k. We took this out a couple of years ago when interest rates were lower but we remortgaged earlier in the year. We moved out of London to a home we want to stay in for at least 10 years but possibly longer. The only thing you can do is work out your finances and see if you can realistically afford further rate increases and go from there. It does worry me sometimes but we needed the space and are really happy with the area and the schools etc.

I think as long as you don’t get yourself into a ridiculous amount of debt doing it up you’ll be fine.

I think it really depends where you see yourself long terms! Ie if you don’t get a larger mortgage now will you need to move again in five years anyway for size (incurring stamp duty, estate agent fees plus stress) or can you find somewhere now with a larger mortgage whilst remaining confident that you can afford the repayments (and factor in future realistic salary changes). Ultimately you know what is reasonable for you and your family. What two families earning the same can borrow could materially difer if one family had private school fees or large commuting costs and another didn’t for example

Can you explain this further please if you read this? For dumbos like me 😁 I’ve heard people say similar before re inflation and mortgage debt but I can’t seem to work it out in my head. Surely if house prices fall a large mortgage debt is no use even with inflation?

Mortgage payment £1600
car hire purchase £368
commuting costs £300
loan to payback brand new central heating system £200
student loan £150
food and general bills £1200 (c tax, hobbies and clothes etc are included)
incidentals often occur (old house!) so perhaps £100- 300 a month?

both of us are on 40% tax bracket so no child benefit.

we usually have £1500 left give or take, depending on house repairs

If you can live in what’s left with a generous contingency then why not?

Have you got a fix?

Are there economies you could make if you needed to? Have you got childcare bills?

It’s a long way off but you have the Uni years ahead of you.

Quality of life is important. A school close by improved our quality of life no end. A house you are happy in and is big enough is also worth a lot, if you can afford it.

We moved two years ago at similar ages with a similar salary, and borrowed £430k. We’ve paid off £25k of capital already and are just chipping away at it. We fixed our mortgage for 5 years, so we’ve got three more before we have to remortgage. DS is leaving primary school next week and can walk to secondary from September, so no more breakfast and after school care to pay for (£20 a day, around £120 a month) and with the teachers pay rise announced and my new promotion that I’m starting in September I’ll be earning around £10k more. The mortgage for our old house was HALF what we are paying now, and we are definitely feeling the pinch. BUT the fact DS can walk to school and his friends live round the corner, DH doesn’t have to pay for parking at the station any more and this house is detached with a garage and off street parking and we can have a dog and chickens means that it’s worth it to us. Funnily enough I was doing pension planning today, if neither of us get promoted again and stay at exactly the same salary for the next twenty years, we can both retire at 60 and pay off the end of the mortgage with lump sums from our (public sector) pensions. We’ve also got joint life insurance and death in service benefits from our jobs, so we are as prepared as we can be I think.

We are similar but have two at university. Our direct debits are £6k per month which include £2k mortgage, then university housing, car repayments, large bills in an old house. It keeps me awake at night but we're hoping it'll ease off when DC's leave university. We love our house otherwise I'd honestly sell up and downsize. No holidays, very little going out etc

Basically, you need your wages to increase such a great award rate than the mortgage. So
So if you borrowed £100,000 to buy the house and at the time that was four times your income but due to inflation your wage is double so that the amount you borrowed is now half instead of four times. You are then in a position to basically smash that debt.
However, you do not want to lose your job, but with the current set of circumstances, i.e. less people available to do any role as long as you hold onto that house by hook or by crook, go interest only whatever it takes the effect will still be the same.

You have a child and elderly parents. Is a 2 bed forever home a logical choice? What would you do if a parent needs care?

I've had a glass of wine might be confused but that doesn't seem to stack up to the 7k which OP said they bring in.

Thanks that's helpful. We're assuming our kids will need to put themselves through uni with us just planning to top up any loan they lose cos of our income. I.can see why it's more if you're paying for all their accommodation. It's definitely worth OP thinking of costs like uni in the longer term.

That's not the OP outgoings.

Thank you. Yes I see. So it considers wage inflation v mortgage debt