Taking on a massive mortgage

[purpleplucker]

It’s so scary. Will we regret it? Do you regret it?

Future earning potential looks good, but what if we suddenly hate our work? Taking on a 30 year mortgage with payment of £5,000 a month is so much.

It depends on lots of factors such as your income, your LTV, whether you plan to have children and how many, other fixed expenses that you already have, your likely career progression, etc.
You also need to do some sums, ie how much interest would you likely pay over a 30 year term? How would this compare to buying a smaller property and then moving later on if you do need a larger home? What protection do you have if one of you is made redundant during a recession? Could you pay the mortgage on one salary? You need to consider the worst case scenario of you are considering taking on such a huge mortgage.

I wouldn't. Our combined income is about £250k pre tax, and the mortgage is £2k. Between us, post tax, we take home about £10.5k/month.

Expensive houses tend to either be big, or in very expensive areas, either way they cost a lot to run. Our bills come to around £4K a month, excluding the mortgage. We do have 3 DC though, so you may not need to include those costs.

High flying careers tend to cost a reasonable amount too. Insurance/indemnity costs, and the "keeping up with colleagues" costs, like clothing/cars, amongst others.

£5k is a massive commitment. You'll be surprised how fast your salary disappears, and you'll end up just working more and more, only to break even. Don't underestimate the peace of mind having a good deal of slack in the budget brings, especially if you decide to have kids

Our pre-tax income is about 20% higher than yours, and our mortgage jumped from £2.5k to £3.5k thanks to Truss-onomics. That was a big blow. What would happen if mortgage rates get worse for you? Could you manage? I know they're supposed to get better this year, but you can't predict the next 30....

We also have one child in private school, at £1.5k a month. So overall our commitment is similar to yours... And it's okay, but like I said, our income is a bit higher, and we don't have heaps left for renovations and similar each month.

Our LTV is around 75% and we have less than 20 years left on the mortgage if that's relevant.

Are you covered properly in case of health issues that would prevent one of you from working? I've just had my second cancer diagnosis in less than 4 years, and I'm only 42! While that's rare, the critical illness insurance was super important on the first diagnosis when my ability to work was suddenly compromised for a few months... Income protection too, though that wasn't needed in the end.

Are you thinking of having children? Are you thinking of private education (even if not going for private schools nursery costs can certainly be the equivalent especially in London). £5000 seems a huge amount if you need childcare/education on top especially on £250,000 a year combined. Are either of you already on partner track? Really importantly what are your pension plans as well ( pre tax combined of £250,000 may not be that much if you pay a decent amount into pension schemes to get tax relief) ?

I' m assuming 5k per month may be half of your post tax take home pay. That's seems very risky.

30 years is a hell of a term unless you are pretty young.

The advice not to assume you will be happy to continue on the same career track is good. I worked in organisation that was full of ex magic circle lawyers and consultants and seriously some of them were properly broken by years of relentless long hours and pressure. Don't let a big mortgage trap you on that treadmill.

We have similar income levels and are aiming at around 3k monthly mortgage... Don't see an issue in upsizing in 5-10y as paying 50k in stamp duty is worth the optionality in my view. House prices are likely to fall/stagnate in real terms in the absence of a new global pandemic. The next government will also likely impose some wealth tax to plug the fiscal hole given that income tax is already at outrageous levels.

So we are taking on a mortgage of 3kish from 2k a month, with two small dc. One starting school this year but we will likely send to private. We have a similar income to you. Our LTV is around 55%. That is honestly our absolutely max that we feel comfortable with and even that feels a bit scary. The back up is that if we choose state primary, then we will be out of nursery fees very soon (currently around £2500).

Ok so I am in a similar situation and my mortgage is a bit under 4k. Yes it’s scary, but I have a couple of comments:

People will comment from a place of good intentions and say this is crazy money, but that is benchmarked by their own earnings. It is all relative. Depending on the exact split of your earnings and tax situation/thresholds let’s say you’re on a post tax take home of £150k. 60k a year mortgage is affordable on that, and frankly your job situation is more stable and guaranteed progression than most. Your other expenses will be comparable with other people ie a day fare zones 1-2 costs the same whether you make 30k or 300k.

There is no point taking advice from someone with a £600 a month mortgage and a 30k salary because the world has changed and if you’re looking to buy in the capital, this is the situation people are now in. You can still save a lot on that salary and have a nice lifestyle (albeit less so if you are paying for childcare or school fees). One bed flats on my road go for £1500 a month now (And I live in shock horror south east zone 3), so buying a 4/5 bed with garden and parking is clearly a better deal. I also think there’s a big argument for skipping the ‘starter home’ when stamp duty is going to cost you tens of thousands and leasehold is so punitive.

As for hating your job: I understand that the corporate slog is not to be sniffed at (as I a fellow corporate slogger), but you have far more options than someone with fewer skills and qualifications. You can always sell, or take a lodger if absolutely necessary.

Finally, the bank won’t let you borrow if they don’t think you can afford it.

We are all susceptible the the ‘extreme anchor’. I remember feeling horrified that my first house was going to cost at least 500k if I stayed in London (and then ended up costing more than 900k, so there we go). My parents expressed similar horror that they bought their third house for 250k, and had done so even before that when they bought their first for 50k. Anyone who says that what you’re doing is crazy has no concept of the situation we are now in, and if you want to get on the ladder with a family home, this is what needs to be done.

Our mortgage was over £4000 a month until it was paid off. It was a ten year mortgage which was why the payments were so high.

We had a joint income of about the same as you. We also had two dc at independent school. It’s doable but we are not extravagant and had old cars etc. we are also both lawyers.

Op, I took on the biggest mortgage I’ve ever had and am still quite surprised I passed the necessary eligibility threshold. Every month is such a struggle and I do miss the freedom to buy a coffee out (I love eating out and miss it dreadfully).

But I love my home so much it's been worth the sacrifice. I’ve never lived anywhere so nice and I spend a lot of time here.

To me, it all boils down to how you view your home: is it an Englishman's castle? Or is it just somewhere you sleep and could easily be substituted with sofa surfing? If you're the former - like me - it might be where you want to put your money, but if you're the latter, or can make a home wherever you are - you might prefer the cash flow being more free.

Except loads and loads of people who have commented on the thread (including me) are in exactly the same situation as the OP and still think it’s a little steep.

For me the key question is the kids one, which OP hasn’t answered, because that has the potential to massively impact earning potential and increase costs (and likely both). Before you’ve had a child you don’t know how you’re going to feel - OP or her partner might want to reduce her hours/step back (likely involving massive pay cut) or if not, will need to pay for gold plated childcare. You don’t want to be in a position where you’re unable to make the choices you want/need to for your kids and family because you’re tied into a house.

"You can always sell or take a lodger" - not if house prices drop and you owe more than the house is worth, and the amount you'd get from a lodger wouldn't touch the sides of £5k a month.

Lots of people on the thread are high earners too. Even by reference to OP’s salary it’s a large mortgage.

I think the key question is whether OP plans to have children. It’s certainly doable if not but a mortgage of this size plus cost of a nanny probably isn’t doable without a significant pay rise. It’s very easy to underestimate nanny costs, especially as figures online often don’t include any of the tax or NICs, plus the fact that nannies who are willing to do the sort of hours required usually charge a premium.

'Anyone who says that what you’re doing is crazy has no concept of the situation we are now in, and if you want to get on the ladder with a family home, this is what needs to be done.'

Really? Anyone who considers that these figures are too high and putting the mortgage bearer at potential risk is crazy?
What would be crazy is to not consider this decision very carefully indeed, thinking through other potential expenses eg children and worst case scenarios. In addition, house prices are widely expected to continued to fall, at least by a small percentage and possible more.

Plenty of other posters, including us, are higher earners but would choose not to stretch to this extent.

If my back of a fag packet calculations are right you are looking to borrow 3 x your joint incomes. That sounds fine to me. As others have said you will be paying higher bills on a larger property. Also children are expensive if you need to keep up a time consuming career.

Go for it! You earn great money and you can be in your forever home!

@purpleplucker are you going to come back?

You may consider waiting to see what the new Labour government will do with SDLT when they get in in April(?).