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?

Using example figures: today your mortgage is 100k, salary is 20k and house price is 150k, your monthly repayment is 1k.

Inflation stays high (eg near 10%) in 5 years time: your mortgage is 100k (less repayments you have made), salary is 32k (same job but inflation puts your pay up), your house is worth £240k, repayments are 1k.

in 10 years, your mortgage is 100k (less repayments), salary is 51k (same job, inflation level pay rises), house price is 380k, repayments are 1k.

Basically inflation makes your salary and house price go up whilst your debt stays the same (in real terms reduces in value). Because inflation makes money worth less over time, it means your debt is also worth less (eg effectively easier to pay over time).

@Dorisbonson unfortunately we are both in public sector and haven't had inflationary oay increases since the Tories came in. It used to be the norm to get inflation plus every year but not anymore hence medics are demanding 35% pay restoration so thats how much public sector lost. Right now it feels like rate increases plus inflation while salaries stay the same.

Does this still hold if there is a property crash? Or the general consensus is over long term property prices will restore even if there is a short term crash? Sorry to crash thread but still trying to get my head round this 🙂

I know but the PP had said that they bring hime about thebl same and wouldn't take on such a big mortgage. But OP has said their take home is 7K and it looked like the PP who said we take home the same actually took home less.

No

1. Depends how many years you have left of earning to pay it off. I would want 20+ years and wouldn't want it hanging around after 60, so would need to be younge than 40 when I started.
2. Depends on how you'd feel if one of you had to take a pay cut or if interest rates go as high as 10%. I'd personally only feel comfortbale taking on a mortgage that I could cover (albeit painfully) at up to 15%
3. Depends what that leaves in terms of equity if you have to sell in a few years and property prices have taken a 10-20% hit

If all those numbers still work out ok, then I'd probably go ahead.

It does because you’re not counting on the capital gains hear you looking for somewhere to live. If you were purchasing the house as an investment that you want to cash and instead of putting the money into the pension, I tell you you were bonkers, but you just want a roof over your head so it’s fine.

Thanks yes I see. Anyway if inflation impacted salary such that monthly mortgage repayments and debt end up being fairly manageable I guess there is more scope to increase pension contributions in due course too. I will stop gate crashing thread now. Thank you.

Yes that's quite doable, although you may find it tight at times as all outgoing expenses are getting more expensive. Make sure you do budgeting property and have a "rainy day" fund for unexpected expenses.

I wouldn't touch a financial adviser with a barge pole tbh. I know too many people who have been given really poor advice. Understand what you are getting into yourself fully rather than relying on someone to spoon feed it to you.

I wouldn’t. We earn similar and are 30 and 33 and we moved house last year. Max we could borrow was c£500k but in my head the amount I was comfortable with was £350k. Maybe I’m just more risk averse, but at your ages as well £400k would be pretty hefty mortgage payments and I’d rather spend the money on enjoying life.

On those numbers you can theoretically afford it. In practice my feeling is what lifestyle do you want to live? I will mean tightening belt. And just how much risk are you comfortable with? I think we'd shift uncomfortably on those numbers but plenty of people wouldn't. We are more prudent than many. I think I'd be uneasy but perhaps feel that's the best it's going to get. It would depend on just how much we needed to move and wanted more space. It's not going to get easier to borrow.

It's doable. But yeah, down to how you feel about it and whether you feel secure enough in jobs to do it. Could you both easily get another job if you needed one?

Our household income is about 170k but nearly all of that in one salary and we borrowed 500k ish 5 years ago. It's tricky, we have a pretty nice house in a very convenient location but I am pretty nervous about it at the moment if I'm honest. It all stacked up more when I felt like whatever happened we could just sell the house but the prospect of that being difficult now makes me feel a bit trapped!

Having said that I took out a ridiculous mortgage (10x joint salary, 5% deposit) in 2006 to buy a flat in zone 2 and that was a fantastic call. We had a tracker and watched our payments go from around £900 a month to about £150 plus the flat went up by £150k in the 4 years we owned it. So being brave can pay off.

I remember borrowing 60,000 when I owned 24,000 back in 2001 and still had an absolute wobble, my father told me I was a fucking idiot do you know what I mean?

There’s always that horrible feeling at the back of your mind that you could lose everything, but you know what the chances are you won’t.

As I said really badly further up in the thread due to predictive texting on my phone. If worse came to the absolute worst, and you had to go and work in Tesco’s. As long as you pay something towards your mortgage, you’re not gonna lose the house. Blips happens throughout people’s lives, but you get through them. You can’t live your life as if something is always going to go wrong or won’t do anything.

In the short term prices will go down. As long as you keep your job and don't want to sell it then a short term decline in prices wont matter.

And don't forget the 'we earn £250k between us but only took out a £50k mortgage, we're very risk averse' brigade.

In the real world, where property is expensive you need to borrow what you need to borrow to buy it. Your numbers seem absolutely fine to me, we earn just over that and have a mortgage of the same. You're borrowing 3x your joint annual salaries, and your repayments will be 33%, that's all very standard and average numbers. I know the monetary amounts are big, but in % terms they're fine and that's what to focus on. The other thing is the big numbers are a positive. A mortgage at 33% when you're taking home £1,500 a month, leaves you with £1k a month for everything else, which could be tight. For you, the 66% left over is around £4.5k (I think) which should still be able to cover bills and fund a nice lifestyle.

Completely agree with this perspective

To add, I would not be underestimating the importance of insurance in your situation - be prepared to spend a few hundred pounds a month on income protection, critical illness and life cover. If you're not prepared to do this then yes - you're mad! If the debt is protected and you could still afford the mortgage at say 8 percent if rates went up further then I don't see what the issue is.

I highly recommend a firm called dm mortgages they are very good with the insurance and mortgage aspect of things.

Our current plan is to stay there long term. We already have elderly parents that require care but honestly they won't move so we already have to go and visit them.

We have also taken out quite a hefty critical illness etc insurance and pay circa 190 quid per month on it so in case of illness and/or death we should be covered.

So you are borrowing 400k to go from an x bed at the moment to a 2 bed ?

That sounds to me like you are in flat land in London.

And if I was in that position, no way.

You can downsize in the future by moving further out. Or you can move further out now and get more space.

Its a crazy economy but I think it will just get harder to buy not easier so probably just do it.

People who find this amount too high clearly live in very cheap parts of the country. OP is lucky because they also already own their property and have some equity from what I gather - we will be FTB on a slightly lower income and planning to borrow the same amount to buy a 2 bed house in a nice commuter town outside London. Prices here are just different, I don't think people who live in other parts of the country get it.

It for me mostly boils down to the sustainability of your line of work. If there are loads of people in their late 50s upwards who do it then fill your boots. If it is already starting to look dicey then this would start to look really dubious.

I don't know if you are still pondering this @hophapjoi

But we've always bought the best property we can afford and I can completely understand that in decent parts of London, it can be an eye watering amount just to get a nice 2 bed. You and your partner are both in safe jobs (public sector) one advantage of which is you are highly unlikely to lose your jobs. You have a child so you need a 2 bed, really, plus you are tied to London for now.

I think you should go for it. From what I've read, it is likely that interest rates only have slightly higher to climb and then will start slowly falling at some point next year. So just don't go locking yourself into a 10 year fixed rate mortgage and you should find the repayments start to get a bit easier in a couple of years.