Reducing Debt - being accountable and taking responsibility

enthusiasticsaver

Hmm tough one. The general rule of thumb is no more than a third of your net income on housing costs but that is a just a rule and is different for everyone. 35% is high when presumably you have other fixed costs like council tax, insurances, utilities on top of that.


I would be asking yourself the following questions.


Is my income likely to change in the next five years (ie go up a grade, student loan finishing, maternity leave or possible job change?)


What am I willing to sacrifice to take on the more expensive house? Holidays, meals out, delaying having kids or changing car?


How much leeway will I have in terms of disposable income and can I survive in the short term with that?


Is there a plan B if plan A runs into difficulties? Cease investing or overpaying into pension, second job or extending term of mortgage?


I have been in the position you are. We moved from London to the West country just as prices and mortgage rates increasing month by month. End of the 1980s. We stretched ourselves to buy this current house as we loved it, the position, the size and literally almost everything about it but it was £6k above our budget. We had already sold our house in Kent and only my DH was working as I was a SAHM with a one year old and a two and a half year old. We increased the mortgage more than we were comfortable with to buy the house and although money was tight we did not regret it. We are still here now. I had to go back to work though a few years earlier than planned as mortgage rates were up at 15%. These days that would not happen so that is a plus in your favour. We had to sacrifice holidays though, DH had a company car and I drove a clapped out car for years but once childcare costs were gone we had loads of spare income again so it got easier.


I think as you have not yet sold your current house you have some time to mull this over, work out the figures and maybe do a five year life plan. Sometimes though we do have to take chances and hope things work out. If you are always going to look back and regret not going for the house you love and end up moving again that is a false economy. If there are other less costly alternatives which you could be just as happy with then maybe consider them. Houses are almost always hearts vs heads though. It is a home you are buying, not a car so I think ultimately you have to be happy there.

DrSpendLittle

Enthusiastic, thanks so much for your sage advice Your story is inspiring and it sounds like you made a good decision to go for it!

With other fixed costs, it's looking to be around 47% of net monthly income

I've modelled expected pay rises over the next 5 years (excluding for inflation) and it brings the mortgage payment : net monthly income ratio down by 1-2% each year. Nothing significant. I will stop paying my student loan in 3 years time but I'll be in the higher tax bracket before then, so I've guesstimated expected gains. Pension contributions will go up by 3% ish in phases over the next few years (mandated, we have no choice). I'd hope both of us would get promoted over the next 5-8 years too. I'd then be earning DF's salary and DF would be earning the next grade up.

We're definitely willing to sacrifice lifestyle - holidays, meals out, changing car etc (we'd sell my commuter car too to generate more ££s for furnishings). But we can't put off starting a family. We're already late to the party and time isn't on our side unfortunately. We'd be in trouble if twins came along :eek:

The other iron in the fire is family inheritance. DF is in a family trust with fairly substantial but illiquid assets. It's possible we'll find ourselves in a position to pay off the mortgage completely within 10 years, but it's not guaranteed. I also don't want DF to be forced to make that decision. I want him to be able to fund early retirement if he so wishes.

We could only extend mortgage term if DF gets a pension statement. We couldn't cut pension contributions as these are dictated by our employer but we could put them on hold I suppose if the worst came to the worst (freeing up at least £700 per month).

Our 5 year life plan is simply to keep doing what were doing and hopefully have one or two kids if we're lucky and blessed. We won't move again before retirement (so at least 20 years).

I think we would regret it if we didn't go for it.

I just don't want to regret going for it and then having to sell in 5 years because we end up conceiving twins or triplets! :rotfl:

enthusiasticsaver

Sounds as if it might be best to go for it then. Re kids, not sure how old you are but if twins or triplets are not in your family or DH family then unlikely but if you are much older (40s) I think it can be more common. One thing which consoled us and I have said this to my DD who has 2 small children is that travelling with young kids is not relaxing or sometimes even enjoyable so sacrificing holidays is not really too much of a sacrifice if you have children soon. Kitting up for kids also need not be expensive. We, as grandparents have bought loads off facebook selling pages for looking after our granddaughters as all this equipment only lasts for a few months, maybe a year at most. The most expensive thing about having kids is childcare and loss of pay while on maternity leave. Given you are quite good at saving and watching your pennies I would think just saving hard will get you through that especially as you will have no debt.


Difficult with inheritances and I have tended to ignore them as not guaranteed although if your DF is in a family trust presumably something has already been set up. What would the income multipliers be if you go for the mortgage you will need, assuming you get roughly what you expect for your current home? Will it be within the norms so you pass the affordability tests?

wishingthemortgaheaway

Enthusiastic always offers such brilliant wisdom.

I can only share my experiences.
I am mid 30s, Pickle is 2.5.
Prior to maternity leave I was in a full time, senior teaching post, excellent salary, amazing pension prospects etc, but I was really unhappy and very stressed/depressed. Yes, I am a statistic, a teacher who has left the job due to 'workload' but the fact we haven't moved and our outgoings are really low meant that, instead of taking occupational maternity pay and having to return to work, I just took the statutory pay and handed my notice in while off work. I spent another 6 months as though I was on Maternity leave. I've now got a job that, at full time salary, would be 3/4 of my previous income, but it's only contracted for 1.5 days a week (there is overtime etc) and we are managing well.

We are looking to move now, but basing it on our current financial circumstances. I guess I'm trying to say, I'm pleased I had the choice not to go back to work, you don't know how you are going to feel once they are here. I love my job now, but I also love the fact I didn't have to return to a job that would have meant spending so little time with him.


Just food for thought.

DrSpendLittle

enthusiasticsaver wrote: »

Re kids, not sure how old you are but if twins or triplets are not in your family or DH family then unlikely but if you are much older (40s) I think it can be more common

My siblings are twins and I'm in my late (ish) 30's :eek::eek::eek::eek:

:rotfl:

enthusiasticsaver

I think wishing makes a good point there in that if you go for the bigger mortgage will that mean you are forced into the position where you have to go back to work full time even if you are not really happy to do that? I went back part time when I eventually went back and stayed part time for some years as I figured it gave me the best of both worlds. Time spent with my daughters whilst also getting in sufficient income to pay bills and treats, extras. Sounds like wishing made the same choice.

I realise you are not yet in that position but it could be within the next five years although you have indicated both you and your DF could possibly work one day a week from home although how you work while also looking after a young baby or child beats me Certainly a consideration.

enthusiasticsaver

DrSpendLittle wrote: »

My siblings are twins and I'm in my late (ish) 30's :eek::eek::eek::eek:

:rotfl:

Whoops. Sounds like it could possibly be on the cards then. One plus is it gets the baby years over relatively quickly assuming you only want two children and only have to go through labour once. Extremely expensive on the childcare front though.

enthusiasticsaver

Actually scrap that going through labour once, of course you will have to go through it twice:rotfl::rotfl:

DrSpendLittle

enthusiasticsaver wrote: »

One thing which consoled us and I have said this to my DD who has 2 small children is that travelling with young kids is not relaxing or sometimes even enjoyable so sacrificing holidays is not really too much of a sacrifice if you have children soon. Kitting up for kids also need not be expensive. We, as grandparents have bought loads off facebook selling pages for looking after our granddaughters as all this equipment only lasts for a few months, maybe a year at most. The most expensive thing about having kids is childcare and loss of pay while on maternity leave. Given you are quite good at saving and watching your pennies I would think just saving hard will get you through that especially as you will have no debt.

We're on the same page We'd look to limit our big foreign trips if we had little ones. And, I'm super motivated to approach motherhood with a good eye for cost control. I've seen friends go mad with buying everything and anything they may need as well as the most over engineered cots, prams and high chairs. Safety is obviously a priority, but I'm not going to be one of those over indulgent live my life through my kids parent

I am a bit scared at the prospect of childcare costs but I think we'd manage. We both have super job flexibility and family who would help out. The only problem is if we have multiples, which is a risk with my age and my siblings being twins. Eeek

Difficult with inheritances and I have tended to ignore them as not guaranteed although if your DF is in a family trust presumably something has already been set up. What would the income multipliers be if you go for the mortgage you will need, assuming you get roughly what you expect for your current home? Will it be within the norms so you pass the affordability tests?

Yup, the inheritance is guaranteed in that it's all been set up in the trust. There is one asset and part of another still not in the trust, for financial reasons, but that is sorted through the will. Well, I assume so

Looking at income multipliers, if my maths are correct, we'd be looking to borrow 4.14 times our joint salary but on a 20 year term with a LTV of 71.7%.

We have an AIP already and that revealed that they might lend us £85,000 above the mortgage amount we'd need. I know the AIP is only a guide, but I've worked on the basis that we'd get a mortgage based on that result. However, you never know nowadays!

DrSpendLittle

wishingthemortgaheaway wrote: »

Enthusiastic always offers such brilliant wisdom.

I can only share my experiences.
I am mid 30s, Pickle is 2.5.
Prior to maternity leave I was in a full time, senior teaching post, excellent salary, amazing pension prospects etc, but I was really unhappy and very stressed/depressed. Yes, I am a statistic, a teacher who has left the job due to 'workload' but the fact we haven't moved and our outgoings are really low meant that, instead of taking occupational maternity pay and having to return to work, I just took the statutory pay and handed my notice in while off work. I spent another 6 months as though I was on Maternity leave. I've now got a job that, at full time salary, would be 3/4 of my previous income, but it's only contracted for 1.5 days a week (there is overtime etc) and we are managing well.

We are looking to move now, but basing it on our current financial circumstances. I guess I'm trying to say, I'm pleased I had the choice not to go back to work, you don't know how you are going to feel once they are here. I love my job now, but I also love the fact I didn't have to return to a job that would have meant spending so little time with him.


Just food for thought.

Thanks Wish, that's excellent advice and its a big issue occupying my thoughts right now, probably more than the monthly surplus after bills if I'm honest. A bigger mortgage gives us very little choice about reducing hours or even retiring early, which DF may want to do. Plus if we have twins then we'd be screwed and very reliant on family.

However, I do love working and I know I could never be a stay at home mum. I think it would drive me insane. I feel that I'd need to still be me - not just mum or wife. But, it's easy me saying that today. Things may well change if / hopefully when the time comes.... I'm 85% sure I'd be happy going back to work. My mum worked full time when we were little and I greatly admired that, even as a little 5 year old. I thought it was super cool that my mum worked and other mums didn't. Not sure where that came from but I think its instilled in me a need and a drive to work.