40 % mortgage

[robespierresvirtue]

We’ve sold our house and have had an offer accepted on a property in an expensive area of a very expensive location. It’s an extremely modest property that needs work but we got a good price. Our current mortgage is 16% of our net monthly income. The new mortgage would be 40% of our net monthly income.it seems terrifying. After the mortgage and council tax we’d have 4k a month to live on as a family of four. I own 50% of another property outright and have ~45k in savings, but my contract for work only lasts until Feb 2028. Are we making a massive mistake taking on such a massive mortgage?

is your work steady? It depends how likely a new contract is in 2028. If there’s a question mark, you can only really rely upon the other persons salary.

if it’s guaranteed, £4k a month should be enough for a family of 4.

We have about £4k a month for a family of 2 adults and 2 kids and our mortgage is £1300 so after we have paid that and council tax we have £2500 for everything else and we manage but we just hope and pray the interest rates don’t go crazy on us like 16% back in the 1980’s-1990’s as that would finish us off.
We both do overtime too and in January we we hoping to start paying off more of our mortgage…. By over paying a bit each month to try to bring it down.

It sounds like you have a decent income, fantastic savings and 50% of another house too so you sound like you’re in a very strong situation.

Sorry 2 adults 3 kids

Thanks for your responses. I think I also have a fear of astronomical interest rates and losing the house. It’s really good to hear of other people’s situations. I feel like we’ve been very free and easy with our money but will have to radically change our lifestyle (no bad thing)

You could always sell your share of the other house if necessary and you also have savings if the repayments get difficult. Without seeing the exact figures you seem fine.

To be clear after capital gains tax I’d probably have 50k from my interest in the second property (it’s a 1-bed flat)

I really wouldn't. I think 40% of your net income is much too high (max 1/3rd is what is usually suggested). As you say, rates are very likely to be higher at some point over the term of a 20/25 year mortgage.
You say that your contract is only for another 18 months. What is your industry like? Are there masses of other opportunities or are people starting to struggle to find work? What about your partner's job? Do you have other large expenses such as childcare or do you not need to pay for that?
Would you need to pay the higher rate of SDLT? Even the basic rate is a lot for an expensive property, which I assume this is.

I think the % thing is a guide but what you have left over is the real decider.

40% of a £4k income would leave you a little over £2k which without childcare would be fine for family of 4

40% of £2k would’ve every little for a family of 4 even without childcare.

you have £4k left after the mortgage and council tax. That should be enough for a family of 4 although you may need to cut your cloth from previous spending - it’s enough for bills and extras though.

So right now it’s manageable so your question is at what level of income would that mortgage not be manageable or at what interest rate would it become unmanageable.

How could/would you negate that?

Of the answer is you could and can overcome it should things change then I’d go for it.

If that means you’d be living off £1-2k as a family if 4 with bills to pay and childcare out of it I’d say no.

It is really hard to row back on that lifestyle creep - moreso if your children are older. Have you tried living on your reduced budget yet and are you likely to sustain it?

Also of interest is anyone using that sprive app?? You shop via the app and then it pays off mortgage interest.

Have you sat down and written a very detailed budget/ forecast budget?

I wrote everything down and separated into sections I.e fixed costs - the things you cannot change (council tax, etc), variables - the things you need but can be cut back on if needed (electric, food), wants - the things you want but could remove (holidays).

I then colour coded what was actually important to me so personally, whilst holidays come under a “want”, they were colour coded in red because I’m not willing to go without them.

I also had a section for the future. For me personally, I want children so I have factored that in.

This is all about risk analysis. Does the risk outweigh the positives? Why are you moving? Consider all of this. Also, try and have a good idea of what is required in terms of renovation costs and research the costs involved. To put it into perspective, our friend just bought a “newly renovated” house which turns out needed a rewire at circa £10k, when they took the floorboards up to rewire, they discovered the previous owners had cut the joists incorrectly and the whole floor needed removing and new joists installed. They’ve also had to have all the walls plastered and skimmed post re-wire. They are about 40k down on a house that needed “nothing doing to it”.

Have you looked at what would happen if there is interest rate increase?

£4000 net a month after housing costs sounds like plenty to me. We are a family of 6 inc 2 teens and have £4100 left over after mortgage and council tax.

We have a very good lifestyle, go on amazing holidays, kids do several activities each etc. Genuinely I don't know how we'd spend more money - we'd just save it. Like you we have a good savings buffer already so we don't really save much at all.

Thanks all. We have no childcare costs. My partner’s job is secure (I think) but he is at the top of his pay grade and I can’t think he’ll earn more in the near future. I’m at the end of a PhD fellowship and have a contract in research until early 2028. I think I could get a job in research fairly easily - but maybe not at my current level of pay. That’s given me pause for thought

And we are moving as neither of us work where we live. For my new role we’d have to buy a second car and pay for wraparound care at school. And where we currently are is a grammar school system - I’m currently paying about 250 a month for tutoring. We’re moving to opt out of the grammar system and have much less commute (my partner works in the new place already). So we would be saving money on multiple fronts, just not as much as the new mortgage would cost us

If the potential of runaway mortgage rates scares you, then just fix for 10 years (provided you are happy with the rate offered). Make sure that the mortgage is portable should you wish to move within the fix period. Most are.

You may end up paying more over time if rates drop after, say, 5 years or so, but you'll have security of a fixed budget.