How much is too much?

Paully232000

thinking about it again, why dont you, as we did, write out a small income and outgoings excel, and see how much money is left at the end of the month after everything is paid out, however small, even down to (for eg) if you pay your TV licence yearly, add £12/month to your expenditure.

Are you happy with what is left for saving/luxuries/interest rate rises?

jamesd

Zippeh wrote: »

I wonder if I'm too cautious, and if it is actually ok to borrow more to get the house you want. Otherwise, how can people ever hope to "trade up"?

The old fashioned route relied on inflation at 6-10% and pay increases to match. The mortgage amount owed didn't increase so anyone who could keep up with the payments would rapidly find that the mortgage payments became cheap then dirt cheap making it easy to rapidly clear the mortgage from the higher income. Just five years ta 8% inflation would bring about a 47% increase in nominal income to use for making mortgage overpayments. If you started out at one third of income that would let you increase payments by 1.5 times the monthly payment without hurting.

Today this takes much longer. At 2% inflation five years results in a much lower but still useful nominal pay increase of 10%. And that's only one third more on the same one third of income mortgage payment for overpaying.

There are ways to cheat, though:

1. get cheap places so you don't pay much interest and have lower bills. This lets you save more so your wealth increases faster.
2. invest instead of overpaying so you gain from the higher compounded growth than mortgage interest. Then you can use this higher amount of equity to upsize more or more cheaply.

What I did was choose an aggressive investing approach and low cost housing, though not bad, just cheap but OK areas. Today, after about ten years, my investments are worth about 89% of my total (net pay plus gross pension contributions) over those ten years. That give me a lot of financial capabilities that I wouldn't have had if I'd been spending a lot more ion interest. But of course I haven't had such a nice place to live in as some might desire and in other ways also haven't chosen a high spending lifestyle, even though I don't skimp either. Today just the non-pension portion of my investments is worth about 1.7 times the price of the place I bought a few years ago. And that much less mortgage if I wanted to upsize or move to a better area. Or the knowledge that today I could stop work if I wanted to accept a lower than my target retirement income.

TheTracker

NW_London wrote: »

Yes you're right, but it's still a stupidly large mortgage and I'd swap it for a smaller mortgage outside of London if it was feasible.

I'm also in London. I bought a house 4 years ago with a 40% LTV, as my first house, and my forever house. The house is now worth 50% more than I paid, effectively I made hundreds of thousands of pounds for no work, should I wish to exit London. It doesn't seem right, sustainable, fair.

kempstar

Same here. We paid £500k for a house in London 2 years ago, with a £400k mortgage. House is probably worth £700k plus now.

andyfromotley

Thrugelmir wrote: »

3% interest rates for 25 years? I would suggest this to be unlikely.

Not necessarily, NW will do a ten year fix at 2.79% Which even if rates rise will afford the OP ten years of (hopefulully) salary increases etc.

I suspect there will be lifetime fixes available for reasonable rates.

We live in exraordinary times for mortgage rates. (Sadly I'm not sure how many people realise this!!!)

silvercar

TheTracker wrote: »

I'm also in London. I bought a house 4 years ago with a 40% LTV, as my first house, and my forever house. The house is now worth 50% more than I paid, effectively I made hundreds of thousands of pounds for no work, should I wish to exit London. It doesn't seem right, sustainable, fair.

Sometimes the way that your house earns more than you do.

Jhoney_2

NW_London wrote: »

£440k with 17 years to go but with an impending house move and a bigger mortgage, it looks like I'll have to extend the term a few years.

When reading threads like this it reminds me how stupidly big my mortgage actually is.

This can often be as a result of postcode chasing in general. E.g the area is in demand and has a 'good' reputation = higher prices.

However as that can be a consistent thing, it is also the reason it pays dividends on sale.

When I bought it was in one such 'go to' London area (where I was born and raised), then I moved outward, then slightly in again - to a less fashionable but very safe ( and much cheaper)area, however with the amenities, transport, schools etc what was an under the raydar good family area has rocketed and I will get the benefits of that in addition to lots of improvements too.

We are very happy here. However, my forever home will be the next one (nearer to family) and we will definitely be moving out of London, thus downsizing the mortgage and improving the quality of life for the whole family.

lovehackney

It doesn't seem ridiculously large to me if it is your forever home.
My partner and I have a £380k mortgage (combined income £110k), aged 25 and 26. We are in London too and it was the only way we could buy something decent.. Still cheaper than renting though!

getmore4less

It's down to you what you spend your income on others will have different priorities.

Work out what you are giving up to have a bigger mortgage.

might be nothing.

Then factor in the risks like loss of income.

Don't forget the on going costs of running a place.

One strategy is look at the long term goals and work back.

eg when would you like to be able to downsize work/retire how much do you need invested can you do both, create that wealth and reduce the debt hen what's left to live on.

there are loads of fancy models but if you just do a present day numbers and ignore inflation you can get a ball park(assumption is investments will do at least inflation).

eg if you want net income of £20k year then a pot of around 1/2 million will do the job(4% return without drawdown).

so you need to save around £725k using the same 4% return 25years(60) that's a round £1500pm

if you go more conservative 3% returns you need nearer £900k £2000pm

Another easy way is the 1/3rds approach.

Live on a 1/3, buy a house with a 1/3, save a 1/3

Retire in 20 years(based on around 3.5% returns) debt free with a house and income similar to what you have been spending on living.

if you have kids then the 1/4 split work over 20y as you need to add in kids spending.

If you include draw down in retirement the numbers get smaller.

hcb42

We earn about £100k between us and currently owe £90K with 10 years to run. I just want rid of it! We are starting to overpay, and I may knock a year off when we select a new product in April, if I am able to do so.

My highest ever mortgage was £186K about 10 years ago - for the forever home, which incidentally we are not in any more.

£225K does sound frightening to me, but on the other hand it sounds like you can afford it providing you both continue to work, and it was for that reason we 'stretched' ourselves 10 years ago and I didn't ever regret doing so, it was a fantastic home. (as is the slightly cheaper one we now live in)