Moving House - overstretching ourselves?

leeds101

Hi all


My first post on here so please be gentle! I have been watching the forums for a little while now and would like some advice on our position.


I have a mortgage call scheduled for a couple of weeks but wanted to check people's thoughts on here.


In summary we are looking at moving house to a larger place and in turn taking on lots more mortgage debt. The focus to date has been paying off the mortgage ASAP so I feel a little uneasy with saddling ourselves with lots more debt again.


Our situation is as follows:


Current home - valued at £125k
House was bought for £93k in 2012 and we have spent approx. £10k on doing it up (it was a repossession so needed lots of work which we did over time)
Mortgage balance currently - £71k
Current mortgage is 1.89% fixed until Jan 2018 - term of 26 years remaining with First Direct (no limits on overpayments)
Repayment of £300 per month. We currently overpay by £700 per month so our mortgage term is vastly reduced to about 4 years.


In terms of earnings there is myself (age 32), my wife (29) and our son (1).


Monthly net income
£3,100 for me (due to pay off student loan later this year which should hopefully increase this by £200-300)
£1,050 for my wife (part time worker)
I get an annual bonus of around £5-15k


Outgoings
I pay £2k to a joint account for the house which covers:
Mortgage £1k - (£300 plus £700 overpayment as mentioned above)
Council tax - £110
Water - £50 (we are having a meter fitted as I am sure this can be reduced)
Gas/elec - £60
Sky - £55
Packaged bank account - £15
Savings for me, my wife and our son - £700 p/m


From the remaining money I pay:


Fuel
Life and CI insurance - £70 for both me and my wife
Childcare costs of £250 per month (going up to £350 per month soon). I am looking into childcare vouchers split between myself and my wife. Due to my income, we don't get child benefit and I couldn't get the full childcare vouchers to cover the nursery fees.


Any credit card balances paid off in full each month (just used for work expenses, holidays etc).


My wife has only recently returned to work from maternity leave so her income will be used for food, entertaining for the family etc. There will be some left at the end of the month which may go into savings - we don't know how much yet.


To date running the house has been more than manageable from just my salary and we have been focussing on overpaying the mortgage.


We have now agreed that we need more space and want to move to a bigger home. This will be our 'forever home' and we would aim to have more children in the future. The place we have seen is on the market for £350k and we hope to have £50k of equity in our current place to pay for it after agents fees. We also have savings of around £10k which could be used for the one-off costs of moving (SDLT, lawyers fees etc).


On a very crude calculation, I expect a mortgage of £300k to be around £1,300-£1,400 per month over 30 years (we are still young enough for this to end before we both reach 65).


My concern is that the council tax will likely double and the utilities probably the same. It is an old detached stone period property so bound to me more expensive to run, maintain etc.


What are people's thoughts on the amount of net income to be spent on the mortgage? I am comfortable that we could afford a more expensive place but am just nervous about overstretching ourselves having worked very hard to get into a comfortable position.


Any advice gratefully received.


Leeds101

ACG

Your situation is very similar to mine and I am also looking to move to purchase a bigger property. I am overpaying but not to the same tune as you so I really will notice the difference in repayments where as you should not.

Could you not extend the term to keep repayments down and then overpay by what you can afford to/are happy to?

leeds101

Hi ACG


Thanks for the reply.


In order to get repayments at £1,300 p/m I would be extending the term from 26 to 30 years. I expect that we would need to save most of our spare cash in early months as the one-off costs of moving will eat into our savings so we will need to build those up again, as I need to have a comfort blanket in case of redundancy/second child/new car etc.


Once we are on a level footing then, yes I would like to overpay on the mortgage. On the info I have stated, do you think it is affordable? Moving from a very comfortable position at the minute just makes me very nervous!!

ACG

The question is do YOU think it is affordable?
Do you think it will be affordable if/when rates rise?

leeds101

Very good point! I do think it is but as I say, I am just nervous in stepping things up a level.


Thanks for your comments.

ACG

So long as you can sleep at night and still do the things you want with the kids, thats all that matters. There is little point having a great house but then not being able to go out with the kids, holidays, meals, cinema etc or having a heart attack every time a bill comes in.

MerrilyA

Hello Leeds101

You may want to do a stress test on your different outgoings and adjust the figures considering different scenarios.

Can you wait a little longer or extend your property?

Is there a possibility to look for something a little cheaper. Perhaps looking for properties that haven't been advertised through an agent e.g. leaflet/drop notes in houses of interest or auction where you may be able to a cheaper property.

It may be beneficial to speak to a mortgage advisor.

You can also find out about anticipated changes like council tax directly from the council, if you get more details about the property you can get estimates on how much you will pay for the utilities.

Getting as much info as you can and taking time to review everything should give you a clearer picture on the best course of action.

leeds101

Hello MerrilyA


Yes, I have been stress testing the figures and trying to predict changes (interest rates will only go one way from here!). I was quite impressed that all the council tax information was publicly available. For the utilities at a new home, I have just stuck my finger in the air and guessed!


We could probably find something cheaper but when factoring in the one-off costs of moving, I would rather borrow a little more and buy the ideal home for the next 30+ years!


Thanks for your comments.

looknohands

Your situation is kind of similar to me

Me and my girlfriend take home is £4.4k per month, however our mortgage is £649, like you our current mortgage is very easy to manage. We are careful with money, we don't spend much on material things, our car is about 20 years old, the main thing we spend money on is holidays every few months... We worried at first about a £649 mortgage which in hindsight was stupid...

So we've started looking at bigger properties, still being a little cautious I would personally feel £1k I would be comfortable, however I don't think your £1.3k is crazy.

It's totally down to your lifestyle really, if you're stacked with car loans and spending £500 a month on new trainers then might be a struggle.

MrJB

Rough rule of thumb 25-30% of your gross income on mortgage - to me you will be well within this amount and I do not see it as being a huge burden for you. I guess it really depends upon your future plans and the likelihood of more kids etc.

Mortgage lenders will assess affordability pretty carefully these days, and I cannot envisage that they will have an issue with your mortgage which will be circa 15% of your gross combined income.

chelseablue

We take home £4k and our mortgage is £722, our term is 34 years as I wanted to keep the payments low for now while we are paying for our sons nursery fees.


I would say go for it, with the maximum term and overpay if you can.