£340k mortgage - too big?

Atomix

jeks2014 wrote: »

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

Especially because your a high-earner and will be used to that sort of money coming in - an 'average' paid job isnt going to sustain your outgoings for long... (big houses cost more to run too... its not just about the mortgage) - you sound really sensible to me, remember everything has a risk - go for it I say! (it looks completely affordable to you). Good Luck

Thrugelmir

What you also need to consider is whether you want to live life a little before starting a family. Life changes when you've got one. A dream property can always come later. Bigger house bigger outgoings.

Then there's the ultimate dream. Retiring early. Takes planning years ahead to make this a realistic goal.

Idiophreak

jeks2014 wrote:

we have planned it meticulously

This to me is the concern...you've mapped out a lot of your life here and made a lot of assumptions on the way...I've added some %s below, not because I think they're right...but just to remind you that the whole thing's a probability - and that probability is that your plan for the next 10 years will seem wildly inaccurate when you look back on it in 10 years time.

jeks2014 wrote: »

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. (so 60% chance you'll be able to maintain this wage. Your job is stable..but you might switch to another firm for a pay rise...and that job may fall through, who knows, sales is a fickle business...I think 60% is pretty optimistic).

Our plan, as we want kids in the next 3-4 years (70%- you may change your minds, having children may not happen according to your schedule ...could end up with the two of you rattling around in a great big house for a decade...),

We have seen a house we absolutely love and it is on for £500k. We feel we could get it for about £450k. (60% - the seller may feel otherwise )


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 (40% - you'll have last a great big chunk of income and will have all the costs of children coming out...the chances that you'll end up only overpaying by 3k less seem slim...)

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. (50% - interest rates are due for rising soon and could go up relatively rapidly..the chances of the same kinds of deals being available in 5 years are slim)

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. 50% - your wife may not want to go back to work, or may want to go back sooner. She may need to care for your children, who knows.

However if we buy this house at £450k, in 5 years it should be worth at least £500k, (50%...on a long term, it's fair to be confident of an increase...but 5 years isn't long term...)

By the end of this masterplan, I'd suggest that the chances of you being remotely on track are so slim that there's really not a lot of point speculating on them.

Rather than map stuff out, ask yourself questions:
1) Is this really what I want to spend all our money on? Is a "wow" house the most important thing to me, or would I rather send the kids to private school, have more overseas holidays, put away savings for the children's first houses...

2) If everything went belly up, what state would I be in? How long would I be able to survive in the house? What price would I need to sell at to get out safely?

3) What else could change that would impact this decision? Am I likely to need to move to be closer to family, am I likely to be left a huge amount of money?

With all of these things, once you've established broad affordability (which I think you have), it's a question of backing yourself to make it work, crossing your fingers and hoping for the best. So you just need to make sure you think it's a venture worth crossing your fingers for...

Atomix

I completely see where idiophreak is coming from there… mapping out your life isn't always going to work, which is why you also need a bit of gut instinct.

Your going through the exact same thoughts anyone else looking to get a mortgage will be going through - except the amount is higher obviously.

From what Ive read so-far, your both in your early 30's, your wife is a maths teacher (excellent job / future prospects) and you're a sales director for a multi-national (again excellent job / future prospects) you both haven't got where you are by chance - chances are you'll both do well! (You already are!!)

As others have said - its whether you want to take the financial/affordability risk - and from your first post - your gut feel was positive! (job security, the right-move for you/your family etc). Just cover yourself financially with an ISA or 2 - for peace of mind… good luck (a lot of people would give their right arm to be in your position!)

kipperkendall

My only feedback would be do you really want to have the burden of a very large mortgage over your head for the rest of your working life!

I was in sales, had a lovely house and was ready to move to my next "dream" house!! Trouble was that was another £150k, taking the mortgage up to about £300k plus. And that would of locked me in to a life of mortgage pressures!

Instead, we moved to the country in an area that was brilliant but house prices were much cheaper, got an even bigger dream house and kept the mortgage the same. Result.

And something worth considering is that when you hit 40 and then 50 you've goals and aspirations can change - family and lifestyle can become more important than having the biggest and the best.

Just some thoughts to help balance the views already given. At the end of the day, if you buy wisely and add value to a property at least it has a good chance of being a saleable asset if things don't turn out as you plan.

Best of luck - I guess there isn't a right or wrong answer as no one has a crystal ball!!

Thrugelmir

kipperkendall wrote: »

And something worth considering is that when you hit 40 and then 50 you've goals and aspirations can change - family and lifestyle can become more important than having the biggest and the best.

Novelty of being on the hamster wheel wore off for me. Now more simple, less stressful existance. Far more important things in life than just earning money.

getmore4less

jeks2014 wrote: »

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.

You would be better using your earning capacity to support development while living in the places to reduce tax issues before you have kids.

once mortgaged to the eyeballs loss of income and kids you probably won't have the capital to start funding development projects.

jeks2014

Thanks for the most recent posts.

I fully realise that not everything goes to plan, I see this every day of my working life. I spend most of my time evaluating risk and probability and making appropriate decisions on this sort of information, so I am well versed in this area. However to not have any plan is in my view a recipe for failure. Surely having a vision of where you want to be in 10-15 years (which will differ from person to person) and have a strategy and plan to get there is better than nothing at all. Or perhaps I have got it all wrong and have lucked my way to where I am so far.

In terms of property developing, all my calcs assume a worst case that I remain static in my current role. However this is unlikely to happen as my salary has in effect doubled every 5 years of my career. In 5 years I actually expect (and have been promised) to be in an MD level role earning double what I am at the moment so this will give me the 'capital' we need to start developing (if we feel we need or want to).

Thanks to all who provided constructive responses. Appreciated.

Idiophreak

jeks2014 wrote: »

I fully realise that not everything goes to plan, I see this every day of my working life. I spend most of my time evaluating risk and probability and making appropriate decisions on this sort of information, so I am well versed in this area. However to not have any plan is in my view a recipe for failure. Surely having a vision of where you want to be in 10-15 years (which will differ from person to person) and have a strategy and plan to get there is better than nothing at all. Or perhaps I have got it all wrong and have lucked my way to where I am so far.

I think it's a fine line. Most people sit and think "in the next 5 years we might move into a bigger place...so we'll need to pay more on the mortgage...maybe a couple of years after that we'll think about having kids...so we'll need to put some savings away for that...I hope that I'll be earning a bit more in 5 years..."

Like you say, that's quite prudent and key to making sensible life decisions...But there's a difference between doing that and mapping out the next 20 years of your life down to the month, trying to predict interest rates, mortgage contributions, future wages etc. The more detail you try to add to forecasts, the less reliable they are....and generally speaking, when people start getting into that level of detail, the sums they're trying to prove are marginal.

If your house cost £1, you'd say "I'm confident, that whatever happens, I'll afford that in 10 years, it's fine".

If it cost £10bn, you'd say "I won't be able to afford that"

If it were £100k, you'd say "if everything goes fine, it'll be no problem"

If it cost £500k, you'd say "well, if I earnt this much, managed to hit this bonus in this year, invested in a fund at Y%, rolled the profit over into this, deducted the tax, changed down a brand of toilet paper, I *could* afford it..."

The more detail you need to prove you can afford it, probably the less you can afford it...