New House Purchase. Am I going MAD?!?

I'm very close to paying off my mortgage and have approximately £220,000 worth of equity in my current property.

I'm now currently considering my options and one of them is to move to a bigger property costing £525,000, which would require me taking on a new mortgage of £300,000. This would involve making monthly mortgage payments equal to approx 40% of our joint salaries (on a repayment rather than interest-only basis) for 17 years.

1. Do you consider payments equal to 40% of joint salary to be excessive?
2. Am I stark raving mad for even considering such a large mortgage even though I will have more than 40% equity in the new property
3. What tips or recommendations can anybody suggest in enabling us to hammer down the purchase price or enable us to negotiate for inclusive add-ons in the deal (e.g. carpets, curtains). The house is a new build, by the way, and we would be purchasing directly from the builder.

Many Thanks.
Mortgage Feb 2001 - £129,000
Mortgage July 2007 - £0
Original Mortgage Termination Date - Nov 2018
Mortgage Interest saved - £63790.60
ISA Profit since Jan 1st 2015 - 98.2% (updated 1 Dec 2020)
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Replies

  • Gray0103Gray0103 Forumite
    100 Posts
    My only advice would be could you afford the mortgage and other financial commitments on only one salary?
    Only one Debt left and thats the Mortgage

    June 05 - £110,500
    June 06 - £ 99,000
    June 07 - £96,000
    June 08 - £90,000 TARGET
    June 09 - £85,000 TARGET
  • lightspeedlightspeed Forumite
    246 Posts
    Personally i think 40% is excessive, however, it all comes down to affordability. For example, what your lifestyles are like, would you be able to afford this mortgage if IR's doubled???

    With regards to the above post, at the end of the day, there are probably not many couples out there that can afford the mortgage and other financial commitments and live there "normal" life if one income was lost (if you can, you are likely to have a small mortgage in comparison to the income or a very cheap way of living)

    I noticed that you stated that you would have this mortgage over 17 years. Surely if you extended the term, the % of joint incomes would be less making the mortgage payments less excessive. This would also give you the option to make overpayments at your own pace while keeping extra money back incase of an emergency.

    In general, buying to meet ones needs is becoming less and less affordable for the average Joe, however, if you have no debt and no other major financial commitments and you realistic think you can afford this size of loan, then the decision is entirely yours. Knowone can advice for or against, you must feel comfortable with the decision and be fully aware of any consequences.

    What if - "What if" never happens?"

    Only my opinion.
  • violetb_2violetb_2 Forumite
    119 Posts
    Hi there, I don't think you are mad. It is not unusual to have a 40% of salary mortgage payment, but I would be wondering whether I could guarantee the new build will increase in value over time. If I was pretty sure of that and very secure in my work I could go for it and if worst came to worst sell in difficulties. The proviso being that it wouldn't affect anyone else other than those who took the decision to move in the first place. If kids are involved the 'what if' of having to move house needs a lot more thought.

    There are many people living in beautiful houses because they took the risk - I once saw a TV programme which said buy the most expensive house and the cheapest car you can afford. I wish I had done it that way round!!

    I do not have an answer, but wish you well and would be interested to hear how you get on.

    Violet
  • MartinslovechildMartinslovechild Forumite
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    violetb wrote:
    I do not have an answer, but wish you well and would be interested to hear how you get on.

    Violet
    Many Thanks, Violet, for your response.

    The builder has come back with a part-ex offer for our property which is below the figure that we're looking for so they've currently gone away to see if an increase is possible. We'll hopefully know more later this week.

    It's a real tough call for me because I'm not even sure that I'm making the right decision - I've been so focused on paying my existing mortgage off for the past few years and looking forward to not paying huge sums out each month to the building society, that it seems a little nonsensical to be considering another move, but we definitely need more space (for my CDs rather than kids!!).
    Mortgage Feb 2001 - £129,000
    Mortgage July 2007 - £0
    Original Mortgage Termination Date - Nov 2018
    Mortgage Interest saved - £63790.60
    ISA Profit since Jan 1st 2015 - 98.2% (updated 1 Dec 2020)
  • MartinslovechildMartinslovechild Forumite
    1.6K Posts
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    lightspeed wrote:
    I noticed that you stated that you would have this mortgage over 17 years. Surely if you extended the term, the % of joint incomes would be less making the mortgage payments less excessive. This would also give you the option to make overpayments at your own pace while keeping extra money back incase of an emergency.
    Thanks Lightspeed,

    You're correct - 17 years was chosen because I will be 54 when it's paid off. I could certainly extend this, maybe to 23 years, but would certainly not want to be in a position where i'm still paying this my retirement (I would be 60 years old after 23 years mortgage).
    Mortgage Feb 2001 - £129,000
    Mortgage July 2007 - £0
    Original Mortgage Termination Date - Nov 2018
    Mortgage Interest saved - £63790.60
    ISA Profit since Jan 1st 2015 - 98.2% (updated 1 Dec 2020)
  • JaysJays Forumite
    410 Posts
    Gray0103 wrote:
    My only advice would be could you afford the mortgage and other financial commitments on only one salary?

    Hi Martinslovechild

    My concern would be the same as Gray's quote above, could you afford the mortgage if one of you lost your job? I think you need to consider this whilst making your decision.

    Also, remember bigger houses cost more: rates, water, heating and lighting,to carpet/floor, decorate, furnish, etc etc.

    Another point, usually newbuilds cost more initially, therefore it will take longer for your new property to appreciate.

    Just a couple of points to consider, I wish you all the best which ever way you decide to go.

    Jays
  • jonesMUFCforeverjonesMUFCforever Forumite
    28.9K Posts
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    If you only need extra space is an extension out of the equation?
    Much cheaper and will further enhance the value of your existing property over time.
  • we definitely need more space (for my CDs rather than kids!!).

    Not many people would take out a £300,000 mortgage so that they had room for their CDs. So yes perhaps you are mad.:confused: :rotfl: :A
    ..
  • tomsticklandtomstickland Forumite
    19.5K Posts
    10,000 Posts Combo Breaker
    I think you should ponder this long and hard. Personally I wouldn't want go from being mortgage free to having a £300K mortgage. Are you thinking emotionally (ie: nice new house) rather than financially?
    Happy chappy
  • MartinslovechildMartinslovechild Forumite
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    Jays - I reckon we'd be OK (for a year at least) as i've got Mortgage Protection Insurance against redundancy and I suppose the worst that can happen is that we'd have the property repossessed but we'd still have enough equity to allow us to move back down the property ladder to a house like the one we're currently living in hopefully without requiring a mortgage.

    I've put all the estimated costs into a spreadsheet. It's interesting that when I moved from a 2 bed semi 4 miles away to a 4 bed detached, my house insurance halved!! My gas & electric will inevitably increase but hopefully not massively. Again, interestingly, we're paying about 40% less on our gas & electric bills than my mother-in-law who lives in a house half the size because she doesn't want to leave British Gas, but that story's for another time!!

    Also - thanks for your point about new builds taking longer to appreciate - totally valid - thanks.

    ejones999 - i'm afraid that it would be out of the question. I'm 95% that the council would reject any planning application due to us living on an estate where all 40 properties are pretty much the same and any extension would cause us to block our neighbours' light. Building an extra floor would be ideal but the house would like a tad out of place methinks.

    Robert Sterling - You could be right!! ;)

    Tom Stickland - This is the reason that i'm so undecided. We have really looking forward to being mortgage free, I just feel really pulled in both directions. The biggest reason pulling me in the direction of moving is that we'd be able to accue larger amounts of equity more quickly than our current property. By that, I mean - let's assume that our current property doubles in the next 10 years. After this time, it's then worth £440,000. If I purchase the new property, assuming the same rule, it's then worth £1,000,000 giving us a guaranteed minimum of £700,000 equity. Dunno - I may still be mad!!
    Mortgage Feb 2001 - £129,000
    Mortgage July 2007 - £0
    Original Mortgage Termination Date - Nov 2018
    Mortgage Interest saved - £63790.60
    ISA Profit since Jan 1st 2015 - 98.2% (updated 1 Dec 2020)
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