How much mortgage can I afford?

lonestar79

Hi all,

I will dive straight in. I am 35 years old and I work in banking in London. Completely debt free. Never owned a house. No wife/kids yet either. I saved up £1 million over the last 10 years. My current base salary is £160K (becomes 96K after tax) and I get around £100-120K bonus every year (used to be higher but not anymore).

The question is, how much of a mortgage could I afford? My thinking is:

Out of my £1m saving, I could use £900K as down payment and keep 100K in the bank as emergency fund. If I take £650K mortgage for 25 years, I could buy a 4 bedroom house at a relatively central area in London. However this mortgage is 4 times my base salary. And obviously there is no guarantee that I will keep earning the bonus every year. Am I over stretching myself with this amount of mortgage? In case I lost my job, I could rely on the 100K emergency fund and also I could rent out 2 bedrooms of the house to help with mortgage payments. Monthly mortgage payments will be roughly 3200 and renting the 2 bedrooms could pay half of this amount... Nonetheless, 650K is a large amount and I am questioning whether I am taking too much risk here. If I am taking too much risk, how much mortgage is the sensible amount?

In terms of job security, I work in a risky job and there is some chance that I could lose the job. I do feel confident that I could find another job within a few months. My feeling is that I can assume a base salary of 100-120K in compromise job.

Appreciate any help.

Cornucopia

In this position, I would not be considering a residential mortgage at all.

I would be buying a smaller property using just the savings. By all means start building an investment portfolio (whether in property or otherwise), but don't confuse living & investing - in your situation there is no need and no benefit.

lonestar79

Thank you for your reply. Why do you say you would not consider a mortgage at all? 800K-900K gets you a 1 or 2 bedroom in London. I am looking for a once in a lifetime purchase of a house. I want it to be big so that I do not need to move when I have a family in the future. I do not want to pay the stamp duty again in the future.

Cornucopia

The main reasons are (a) because £1m is sufficient budget for your needs, and (b) because you are talking about job insecurity.

The other option is to continue as you are (presume you are renting) and build up a larger cash budget.

Concerns about Stamp Duty are probably misplaced - capital growth is likely to vastly exceed any Stamp Duty payments.

TheRoders

If you moved further out of Central London you could get a LOT for £1m. Have you thought about moving further out and commuting in? I would LOVE to be in a position to be mortgage free.

ViolaLass

Just a thought, with no wife and no mention of a girlfriend, is a family imminent enough to be planning house purchases around them?

Jhoney_2

Zone 2. 3 bed terrace 700-800 max bought outright. Can't see the problem in terms of future proofing. Wouldn't need lodgers, family home. No job risks, rising market areas to protect the investment but primarily as a home.

Cornucopia

I'm thinking a little differently to that. The OP doesn't state their age, or work location, but I would probably go for something like this:-

http://www.rightmove.co.uk/property-for-sale/property-49395742.html

Which is in a trendy, central location, walking distance to the City.

The advantage of getting an additional property rather than a bigger property is that (a) someone else will be paying the mortgage from the outset, and (b) it could be a useful income in the event of loss of employment.

Malmo

lonestar79 wrote: »

Why do you say you would not consider a mortgage at all? 800K-900K gets you a 1 or 2 bedroom in London.

Not quite true. It depends on what zone you are interested in, what your specific requirements are and how closely your expectations align with reality.

800 - 900K would get you a very decent property even close to the centre (within 15-20 mins on the Tube), unless you're thinking of the sort of properties along Bishop's Avenue or near Hampstead Heath or something.

Without knowing more about your requirements, here are some examples:
Example 1 - NW1
Example 2 - SW11
Example 3 - E3

I would be inclined to purchase a large family home without a mortgage.

In_For_A_Penny_2

Forgive my cynicism but you’re a millionaire banker asking about mortgage affordability on MSE?

Car1980

On a £250k income you'll be looking at a million mortgage on the multiplier.

So you could be looking at a £2m property on a very healthy 50% LTV.