Mortgage payments increase

roundabouthere

We are planning on moving within two years. The plan is that we will be moving from a circa 150k house to more like 425k. To do this we will be using the small amount of equity in our house (will probably be around 30k at the time) and providing the rest from our own savings leaving a mortgage required of around £300,000.

The step up from our current Mortgage to the new one is going to be from around £650/month to more like £1500/month (at current rates). It is this step up that makes me slightly nervous. Combined we have £5550 net per month (both incomes are roughly equal) so after the step up we would be around 27% of our monthly income going out on monthly mortgage payments.

Are we getting into dangerous territory with these sort of percentages or would most people be comfortable? I know everyone's level of risk is different but i'm just testing the water to see if what we are planning is probably too risky for most people.

Thrugelmir

Why the small amount of equity in your own property?

Only you know the lifestyle you enjoy and the security of your employment. Two factors which influence the amount you may wish to commit to a monthly mortgage outgoing.

My personal concern would emanate around where interest rates could potentially be. With a mortgage of that size repayments could easily be nearer the £2k level in the future.

Ultimately it's personal choice.

roundabouthere

The small amount of equity is down to just one reason...

Buying a brand new house in 2005 which is now worth far less than we paid for it. oh well, onwards and upwards

I appreciate everyone's different with regard to their lifestyle and comfort level so I suppose I was I was trying to get more of a general feel of people's thoughts to take away from the thread.

Pushkin

We are currently doing similar - big jump up from 3 bed semi to 4 bed detached and more than doubling our mortgage. Just worked out the % of our monthly income new mortgage will be and it's 32% - not sure if that consoles you or not! We have calculated it all very carefully and for us its worth the stretch for the (hopefully) long term investment. My main worry (aside from a job loss ) is what interest rates will be when we come off our 2 year fixed rate. I think its always a risk but in our view a calculated one.

Thrugelmir

What rate of interest do you currently pay on your mortgage?

I also meant to add earlier are you adequately saving into other vehicles such as pensions. Sounds as if you've been hit once already so twice would a misfortune. Diversification of a portfolio is another factor to be considered.

roundabouthere

Interest rate is currently 2.5% (2% above the base rate. Thank you Nationwide )

Other vehicles are;

My pension
18% into my work pension, 10% from me and 8% from my employer all through salary sacrifice. The contributions on my part will be going up by 1% each year due to my urge to not work into my sixties.

Wife's pension is through the NHS so hopefully not too much to worry about there.

We've also got long term investments paid into each month which will hopefully provide a nice income to run either with the pension or maybe allow us to retire earlier.

Emergency money is covered.

No other debt apart from the mortgage.

Thrugelmir

Pushkin wrote: »

My main worry (aside from a job loss ) is what interest rates will be when we come off our 2 year fixed rate. I think its always a risk but in our view a calculated one.

Worth considering the longer term as well in any calculation. As a 10 year view would suggests mortgage rates possibly in the 8% - 9% range. If BOE base returns to it's pre credit boom average. Mortgage rates are unlikely to return to the low levels above base either. As banks no longer have the subsidy of generating income from selling PPI to offset against lending rates.