£340k mortgage - too big?

jeks2014

Hi All,

I was hoping you could provide me with some objective advice/opinion on my situation, which is as follows...

My Wife and I are both in our early to mid 30's, both have good jobs; she is a secondary school Maths Teacher at a private school and I am a Sales Director. She earns about £40k pa and I earn a basic of £72k. I usually get some bonus in addition to this of about £10k pa, also have a company car etc.... I work for a big multinational so there is little risk of the company going under in the medium and long term, so job security is decent.

We sold our first house about 1 1/2 years ago (new build town house, was a bit of a disaster, that's another story) and since then have been staying at my in laws to help save up a decent deposit. At this time we have about £127k saved up. This will also cover the stamp duty on the house we buy.

Our plan, as we want kids in the next 3-4 years, was to buy a 4 bed detached house at about £320-£350k, live in this for maybe 10 years whilst we have a couple of kids and raise them, and then step up to another house with big garden etc..., the 'wow' house, which would be the house we would live in for the rest of our lives. And house prices, although rising, are still pretty low at the moment, so you can see some really nice properties that would be that dream house, on the market at the moment in the £500k price bracket.

We have seen a house we absolutely love and it is on for £500k. We feel we could get it for about £450k. However this would leave us with a whopping £340k mortgage.

I have looked at various mortgage deals and as rates are so low at the moment I am tempted to lock in to a 5 year fixed deal at about 3%, so monthly repayments would be about £1.6k per month. This is ok on our joint salaries, as it equates to about 27% of our net salaries after tax (excluding any bonus), and we would have plenty left over after bills etc... to save for a rainy day. Our plan, whilst we are both working, would be to over pay by £10k in the first few years, and then by about £7k in the next 2 (wife stops working to raise the kids, so mortgage would rise to about 40% of my net salary), leaving us with a mortgage of about £250k when the 5 year fixed period ends. We then re-mortgage to get a better deal with a better LTV ratio, producing and estimated monthly payment of about £1.1-£1.3k, which is ok.

After 7 or 8 years of not working (whilst we would over pay by £7k pa), my Wife would then go back to work, we then overpay by as much as we can to get rid of the mortgage ASAP.

However my big concern is raising the required £250k mortgage on my salary alone at the end of the initial 5 year fixed period. I have seen quite a few posts on this board where people have struggled to re-mortgage (where it should have been straightforward) and have been potentially stuck with an extortionate SVR, which surely will be much higher than it is now. However if we buy this house at £450k, in 5 years it should be worth at least £500k, so should have access to the best 60% LTV mortgage deals, which is some comfort. This 'plan' all relies on us being able to over pay, and me staying in my current role (or similar) to maintain the same sort of salary level. This should happen, but as with anything, there are no guarantees of this.

Despite what you may think after reading the above, I am extremely cautious financially. When I was in my teens I saw my Father have a nervous breakdown after his business collapsed and we lost our family home. This happened in front of my eyes and this has stayed with me to this day. Although I 'think' we can do this as we have planned it meticulously part of me thinks we may be overstretching ourselves as there is a lot of if's and but's to make this work. But it is definitely 'better value' to buy that dream house now rather than later, as the mortgage would be much smaller, and prices are low at the moment and will only rocket in the next 5-10 years.

Sorry for the long post, but any opinion/comment/advice would be welcome - do you think we are pushing it too far?

Thanks

andrewmp

As BBC always remind us...

But be careful, at 12% it will be: £3612.49

pjread

Well, I borrowed over half of that, and I earn a little less than you (sole earner with children, so presumably higher outgoings to boot). So I guess my answer is "No, sounds fine if you can cover it".

jamesml

Whilst I'm not a mortgage advisor I would be surprised if this was an issue to be completely honest. The other thing to consider is if you think the SVR is going to horrific, what position do you think fixes/trackers are going to be at? We aren't going to end up in a position where the SVR is extortionate but base is still low and fixed deals are looking good (unless you sign into a deal now which has ridiculous loading).

IMO you can only make decisons based on what you plan to do now and what you know now. If nothing changes I can't see there is anything wrong majorly with your plan (disclaimer) although I have skim read it, haven't checked your sums and I'm not an expert.

Keekles

£250k against a £72k basic is achievable with a ton of lenders, you're only asking for 3.5x salary although your dependents (including your wife) will be a strain on your income.

However, on outset, I really can't see it being an issue. Is it likely your salary would increase in the next 5 years also?

I think you're doing absolutely the right thing in being cautious but on the face of it, I can't see many problems with the figures you've provided.

aniahill

What are your plans when a child comes along? Will one of you look after it full time and leave work? Or will you pay someone else? Or will grandparents be able to? It seems a long way off but our mortgage advisor told us to think about it (not a concern for us) but you'll be dealing with all of these questions as your fixed rate ends

Bufger

I cant see any issue with it as long as you remember the golden rule. Life rarely goes to plan!

Some mothers dont want to go back to work
Some people lose their jobs even when they think they're secure
Sometimes rates rise.

Its about balancing the risks. You sound like you've done that and you're happy with the chance you're taking so go for it.

jeks2014

All - thanks for the replies.

Keekles - yes I would hope my salary goes up at least in line with inflation, and maybe there is a promotion at some point in there too. All of my analysis assumes I stay in the same role, which probably won't happen. So I am assuming a worst case (apart from losing my job).

aniahill - yes the plan is for my wife to stop working whilst we have kids, so we would only have my salary to support us. But then to go back once they are old enough for school. I know she wants to property develop instead of teaching so will see what's realistic and the best at the right time.

I am maybe being too cautious but after seeing what happened to my Father I am sort of paranoid about it. But I guess you can't live your life second guessing...

Your comments have reassured me we are doing the right thing.

Thanks again.

richbeth

Hi,
I personally would go for it then spend a couple of years paying as much as possible off the mortgage whilst interest rates are still low. Could you live off your wife's salary for a few years (exc mortgage) and then use your for the mortgage and overpayments ? I'm guessing your net pay is ca £4 pm so with capital payments you could knock off almost £70k in 2 years.

Your LTV doesn't look like it would be a big concern. The biggest risk would be rising interest rates but do you think any government is going to let them shoot up too much in the short or medium term ?

Also buying the larger property now will save you the costs of a move in the future which could easily be in excess of £20k in stamp duty, fees etc. Maybe not a big issue if it's 10 yrs away though.

Also, you could consider an offset mortgage as it doesn't have limits on OPs and would allow the pre-baby saving to be used reduce your interest whilst still retaining access.
R

Atomix

My only thoughts are.... Dont be dissilusioned with 'job security' its not about companies going bust - plenty of other things can come into play... my oh works for a very large multi-national where their profits are astronomical (a $1billion a week) and everyone thought theyre jobs were concrete, they still laid 10% of the workforce off, and guess where they focussed - thats right the 'cushdy' high earning management positions... because they wanted to take the business 'into new directions' (oh was completely safe btw) It seems to happen every time there is a new CEO there...

It may take you 6-12 months to find a similar job... therefore as a 'backup' my advice would be - if you can - have enough money to cover the bills for a year as a security measure/peace of mind...

jeks2014

Richbeth - that's right, for the first few years we were sort of looking at my Wife's salary to cover the mortgage and most of the bills, and mine to cover everything else plus over payments and savings. This gives us about £2.5-3k per month left after all other spending to over pay and save. I will look into the offset option you mention also.

Atomix - I think you are right, that's sensible advice, I will make it a priority to plan to move 6-12 months of savings to one side as an emergency fund, just in case...

Cheers