100% mortgage over 30 years, at 4 times your salary- A sensible decision?

Adele_2-2

The highest mortgage we could afford down here would be around £185 - £190k based on a joint income of £47,000, with me working a 3 day week. My husbands salary probably won't drop and I am hoping to be transfered within my company do my salary should also remain the same. So I would envisage a smaller mortage if we go to £170k as a amax plus nursery fees really are much cheaper out of London (I'm originally from the North West and have looked into this) so I know that I will be able to save at least £200 on childcare plus my Mum will also help out so this will probably mean we save £300 on childcare, so that's how I have reasoned out life being more affordable.

barnaby-bear

Adele wrote:

My husbands salary probably won't drop and I am hoping to be transfered within my company do my salary should also remain the same.

??? Really, no London weightings? Does your company really pay national pay scales?
It's in this detail people find the relocation with no financial wodge doesn't help that much.

Adele_2-2

My company doesn't offer London weighting so I would be transferred retaining my salary. However it may be that in the coming years (unless promoted) I only get imflationary pay rises rather than the slightly better ones I had been used to. My husband has a fairly low salary that is comparable up north.
You're right we don't have any capital behind us (aside from a few grand) for the move. We don't expect to live like kings but with salaries staying the same and outgoings becoming a little cheaper we are just hoping for an "easier" existance really. Plus there is the added (debatable!) benefit of being close to family who offer emotional support when needed

Bestthingsinlifearefree

Hi A,

If you get a long term fix. Check out very carefully if there are redemption penaties if you have to sell before the fix rate is up.

e.g you fix for 10 years but for some reason you have to sell the house after 5 years, some mortgages will hit you hard with "redemption penalties"

If there are redemption penaties for the mortgage for more than 3 years after you take it out I would be very, very wary.

As no one can predict how their circumstance might change 3 years plus in to the future.

Good luck.

Leighthal

Kent Reliance do a 25 year fixed rate.

http://www.krbs.co.uk/mortgages.aspx

Only upto 95% LTV though.

:beer:

Phirefly

Have you considered moving north and renting?

Just to give one example of how this compares, where I live in the midlands, if we bought the house we currently rent with a 5% deposit, we would be paying 1.5 times more p/m on a mortgage than we do on rent.

I have many friends in the south east who couldn't conceive that renting would be more financially viable in the short term (2-5 years) as mortgage repayments down there are comparative to rents.

Why not check out rental prices in the areas you're thinking of moving to. You could find that by renting for the next few years you will be spending a lot less than you would be on mortgage repayments on a similar property and be able to save a deposit which will benefit you in the long term. Also, you will be able to see how you like the new location without making a massive financial commitment.

Its not like you can even tell yourself 'yes but if we buy it will be OURS' as you're talking about interest-only, which is no more of an investment than renting.

good luck

robwend

Bestthingsinlifearefree wrote:

Hi A,

If you get a long term fix. Check out very carefully if there are redemption penaties if you have to sell before the fix rate is up.

e.g you fix for 10 years but for some reason you have to sell the house after 5 years, some mortgages will hit you hard with "redemption penalties"

If there are redemption penaties for the mortgage for more than 3 years after you take it out I would be very, very wary.

As no one can predict how their circumstance might change 3 years plus in to the future.

Good luck.

alot of companys alow you to"port"your mortage so you wont have to redeem. the woolwich and barclays offers 10year fixed rate no tie ins and you can move your fixed rate with you to a new home

cruella_de_vile

Adele wrote:

The highest mortgage we could afford down here would be around £185 - £190k based on a joint income of £47,000, with me working a 3 day week. My husbands salary probably won't drop and I am hoping to be transfered within my company do my salary should also remain the same. So I would envisage a smaller mortage if we go to £170k as a amax plus nursery fees really are much cheaper out of London (I'm originally from the North West and have looked into this) so I know that I will be able to save at least £200 on childcare plus my Mum will also help out so this will probably mean we save £300 on childcare, so that's how I have reasoned out life being more affordable.

I live in Cheshire and was paying over £500 per month on nursery fees 3 years ago so I wouldn't count on them being that much cheaper.

ruggerboy

Hi Adele

I'm a recent FTB, so can completely understand the thoughts that you are going through.

Given the circumstances that you have described, the mortgage you are taking on is high-risk! However, any decision you take on it will be sensible if you have the following three things in mind:

1) Do you intend to live in the property for at least 5 or, preferably, 10 years? If not, then you are at the mercy of the property market. That's because, if property prices drop, you are immediately in negative equity. Now, negative equity isn't the end-of-the-world - all it means is that selling your house when you want to move on is very difficult, if not impossible. Given that current property prices are by all accounts high, there is a risk (though it is by no means guaranteed) that there may be a correction. And, if a correction were to occur then, in my opinion, it will take about 10 years for property prices to recover to their current levels. So, if you're comfortable with the risk that property prices may correct and, if they did, can then live in your property for at least 10 years, then go for it!

2) It's worth doing a personal budget to see what % the mortgage payment will take from your combined take-home pay. If it's less than 40%, then that's usually regarded as okay for FTBs, though ideally it should be closer to 30%. If it's over 40%, then that's risky but do-able - in this circumstance, you'll need to think how you can cover unexpected "emergency" payments such as fixing a faulty boiler, or unblocking a drain. If it's over 50%, then you are at grave risk of over-stretching yourself, and you may want to reconsider whether you should take on such a mortgage?

3) Given that you will have limited income once all essential out-goings are made, it’s worth fixing your mortgage payments (or, preferably, capping them if such products still exist). Whilst fixed-rate mortgages are generally more expensive to service than tracker or discount mortgages, in my opinion the peace of mind you will get from knowing that your mortgage payment won’t rise above a certain level is worth the expense – especially if you don’t have a monthly cash buffer to protect you against any future interest rate rises.

One final point, I assume that your mortgage is a repayment one. If it is an interest only mortgage, then bear in mind that you will not be repaying any of the capital debt! I worry about the trend these days of people taking out interest only mortgages, because I’m not sure they have fully thought through the consequences! Servicing an IO mortgage is certainly cheaper than a repayment mortgage, which makes them an attractive proposition if you are “desperate” to get on the property ladder. But, in my opinion, it is very high-risk indeed to rely on future equity gain as the means to pay off the capital debt – because, what happens if property prices don’t carry on rising? You’d soon be very stuck! So, if this mortgage is IO, you must set up simultaneously an alternative repayment vehicle – such as a stocks-and-shares ISA.

Hope this all helps. I remember how exciting it was for me when I bought my first property last year, and I wish you every success in your endeavours to find the property of your desires!

Regards

Chris

Adele_2-2

Thanks for that Chris, that was very useful reading. Our mortgage would be aroun 35% of our total monthly net income so hopefully that's not too bad. And yes we would intend to stay somewhere for the long haul, after moving so much I would be only to happy to settle somewhere for 10 years. The mortgage would be a repayment one and I think we would probably consider fixing as long as we could so we could at least plan our finances.