Are we stretching too far?

Mazza92 · 2023-09-05T11:54:13+00:00

Combined salary £250k . 2 DC in nursery so childcare fees high in London. Found a dream size house for £1.1m. Salaries are expected to rise by ~50k in about 5 years. I feel like we should stretch so we don’t ever have to move again. We are late 30s. Only 10% deposit however- does this sound bonkers given current interest rates?

Annasgirl · 05/09/2023 12:56

What are your repayments per month as a percentage of after tax income, can you fix at a lowest rate for 5 years.

Mylittleoldbabeee · 05/09/2023 12:59

OP we are very similar to you figures wise. However we have 45% deposit/equity going in to our purchase. That along with porting our current very low interest rate deal is making it affordable. Once we move the whole loan to a higher rate, we will have no nursery fees and higher salaries.

That feels for us, the max comfortable we would be prepared to do.

do you have savings? What would your monthly repayments be?

happinessischocolate · 05/09/2023 13:23

If one of you lost your job would you easily be able to get another job on the same salary.

Always look at worst case scenarios, especially when stretching to max.

If you only have 10% deposit then there's a good chance you'll dip into negative equity within the next couple of years which would affect any new mortgage rates on a fixed term mortgage.

Original poster

Mazza92 · 05/09/2023 14:13

Thanks, 6 months emergency fund and when the 5 year fix ends. We will also not have any nursery fees by that time- seems like it will be tight for a few years regardless

OP posts:

Original poster

Mazza92 · 05/09/2023 14:17

Yes we can fix. 41% of house value

OP posts:

Original poster

Mazza92 · 05/09/2023 14:17

Sorry I mean 41% of net income

OP posts:

Alarae · 05/09/2023 14:21

It sounds scary but at 41% of net income I don't see the issue. That number would be scary for people on a lower joint income, but I imagine the remaining 59% is quite healthy- unless it is mostly eaten up by nursery fees?

If you can fix, grin and bear it and it won't be putting you in a financial hole, I would go for it. Your salaries will increase and your nursery costs will go down.

We stretched for our current house knowing increased salaries were on the way and it's worked out fine. Obviously inflation is something else to factor in, but we are likely at the worst of it now.

PickledPurplePickle · 05/09/2023 14:23

I wouldn't - with only a 10% deposit, that is a huge mortgage

Can one of you pay for everything if the other one loses their job for example?

Our mortgage is about 20% of our take home

CrispsnDips · 05/09/2023 14:24

We stretched ourselves a few years ago, not at the same monetary values, but nonetheless it paid off and we’re really pleased we were brave enough to take the step

PickledPurplePickle · 05/09/2023 14:25

Does an affordability calculation say that you would be able to borrow that much with your other outgoings?

KievLoverTwo · 05/09/2023 15:37

I think I would probably go for it, in the following circumstances: a) if either of you are made redundant, your industries are robust enough to get a new job within three months on 80% of the salary, or contract or freelance at the equivalent and b) there is absolutely nothing wrong with the house, it's a re-sale star: no tiny garden but massive family home, no 4 bed but only 1 bath with no extra WC and no space for one, no strangely shaped, difficult to furnish rooms, no home with 'problem' parking, no tiny, impossible to change kitchens. And then, for the size of the mortgage, I think it would have to be a five year fix for safety's sake.

I assume London? I think mortgages take up 50% of take-home there? :(

lavender2023 · 05/09/2023 15:57

KievLoverTwo · 05/09/2023 15:37

I think I would probably go for it, in the following circumstances: a) if either of you are made redundant, your industries are robust enough to get a new job within three months on 80% of the salary, or contract or freelance at the equivalent and b) there is absolutely nothing wrong with the house, it's a re-sale star: no tiny garden but massive family home, no 4 bed but only 1 bath with no extra WC and no space for one, no strangely shaped, difficult to furnish rooms, no home with 'problem' parking, no tiny, impossible to change kitchens. And then, for the size of the mortgage, I think it would have to be a five year fix for safety's sake.

I assume London? I think mortgages take up 50% of take-home there? :(

It doesn't always. I have a small 2 bed flat in zone 3 north london and our mortgage is currently 15% of after tax income (and we only earn £120k combined, in early 30s). When we remortgage next year it would be 22% of after tax income. We plan on buying a slightly bigger flat which is around the £550k mark, max £600k if buying in a few years.

I think its horses for courses, some people don't really prize having a large home and would rather have more disposable income, others feel very differently. As a rule of thumb i believe a home should not cost more than 4- 4.5 times combined income if possible. Having said that, when we bought in our 20s, our flat cost us 7.8 times our household income (though we had 15% deposit), though our incomes did increase and its more like 3.33 times combined income.

I think for OP, it would be best if the house cost £1 million (4 X 250k), instead of £1.1 million, may be better to wait awhile and see if prices will drop.

TheNoonBell · 06/09/2023 09:30

If you are earning 250k/yr I'd wait and save more deposit. Prices are dropping so it will put you in a much better position in 12-18 months.