FTB £480k mortgage - too big?

GirlInKent

Hi All,

I was hoping you could provide me with some objective advice/opinion on my situation, which is as follows.

My husband and I are both in our early 30's, both have good jobs in financial services industry. He earns about £55k pa and I £45k. We both work for big multinationals so there is little risk of the company going under in the medium and long term, so job security is decent.

We have about £90k for deposit and additional £60k as emergency money saved up. This will also cover the stamp duty on the house we buy.

Our plan, as we want a kid in the next 1-2 years, is to buy a 4 bed terraced house in SE London. We have seen a property which is at £570k (near to outstanding primary and secondary schools), where we want to live in this for maybe 15 years at-least. However this would leave us with a whopping £480k mortgage.

I have looked at various mortgage deals and we can get a 2 year fixed deal at about 1.54%, so monthly repayments would be about £2k per month. This is ok on our joint salaries. We then re-mortgage to get a better deal with a better LTV ratio, producing and estimated monthly payment of about £2.5k, which is ok.

However our big concern is what if we struggle to get a cheaper re-mortgage and potentially get stuck with an extortionate SVR, which surely will be much higher than it is now. However if we buy this house at £570k, in 5 years if it goes up to at least £600k (similar properties have sold at 600k in past 6 months in same area/lane), so should have access to the best 75-80% LTV mortgage deals, which is some comfort. This 'plan' all relies on us being able to over pay, and us staying in our current role (or similar) to maintain the same sort of salary level. This should happen, but as with anything, there are no guarantees of this.

Although I 'think' we can do this as we have planned it meticulously part of me thinks we may be over-stretching ourselves as there is a lot of if's and but's to make this work. But it is definitely 'better value' to buy that dream house now rather than later, as the mortgage would be much smaller, and prices are low at the moment and may rocket in the next 5-10 years. On the downside, property market may see correction and the value of the house may go down.

Sorry for the long post, but any opinion/comment/advice would be welcome - do you think we are pushing it too far?

Thanks

OUNN

It's certainly do-able.
And skipping steps in the property ladder means you will save in stamp duty, solicitors fees and estate agents fees from buying and selling.

My only question for you to look into or think about is - what is your company's maternity pay policy?

Because once the little one arrives, maternity pay can make a big difference to affordability and the amount coming in each month. More so if it's statutory and you elect to take 12 months off!

If you're worried about rates, look at what the difference is in a 5 year fix. Then see what that difference would be in the next LTV bracket. It might be less than you thought, and if rates do go up, that difference would be negated - so a longer fix might add security!

haras_nosirrah

Ask yourself the following questions

Is it a home or an investment?
Can you see yourself staying put long term?
Can you afford the mortgage if the rates were 3-4%
Can you build savings, overpay, while the mortgage is low (and also save up for maternity leave as your income will drop and nursery is expensive)

Essentially if you plan for every little thing you will never buy. Don't go in blind but make sure you have a contingency but you are better getting a house you can stay in long term than going for a much smaller cheaper property you will want to move from when any children come along.

Hope for the best - plan for the worst.

PixelPound

Does your plan also rely on the low interest rates continuing? Mortgages tend to be stress tested to 8% which would repayments at £3.7K.

You are talking about the price in 5 years, but a 2 year fix, so what happens on years 3-5?

Thrugelmir

GirlInKent wrote: »

I have looked at various mortgage deals and we can get a 2 year fixed deal at about 1.54%,

Lenders generally will go to around 4.5 times salary. You need to ensure that this lender is prepared to go to this level on this particular mortgage product.

getmore4less

Pick a lender with a history of decent retention deals.
Take the longest term you can to keep the contractual payment as low as possible.

you are sure your finances are going to get tighter so you need that retention and the long term as the fall back.

£480k 1.54% £2000pm is around 25years go longer(you will have a 10% overpayment so plenty of headroom.
25 £1930
30 £1670
35 £1480
40 £1340

With a 40 y term you have rates up to 4% covered by your £2kpm

in 2 years £480k 1.54% £2000pm £446k

With £6k a month coming in there should be plenty of free cash flow to cover the mortgage and build up a cash pot to give flexibility going for forwards.

How much has rent and saving combined been?


The issue with overpaying is your cash is gone, saving it so you have a 1-2 years mortgage payments in hand you can go down to one salary for quite a long time

GirlInKent

Thanks for your replies.

@OUNN - I have looked at statutory maternity leaves (from my company policy as well) -I intend to take leave for 9 months and we have inputted it and while we will be stretching ourselves for those months - our emergency fund will always be there in case we need to dip in. Totally agree with you, will have a look at 5 year fix

@nic_c - Yes, thinking of remortgaging during that period, however we are considering even if it did go to SVR it will take it to approx 4% and hence will be £ 2.5k per month

@Thrugelmir - I have checked with a mortgage broker and certain on the interest rate for the first 2 years.

GirlInKent

@getmore4less - Thanks for such a detailed analysis. We thought of a longer tenor - but that is what is worrying me the most - so many uncertainties can happen in 40 years! Rent currently is £1100pm and savings has been around £3800. Agree with the overpaying part, I feel its better to keep it as an offset and keep it handy incase of any uncertainty.

getmore4less

Forgot to add before HPI and paying £2kpm
LTV 84%->78% in 2 years

getmore4less

GirlInKent wrote: »

@getmore4less - Thanks for such a detailed analysis. We thought of a longer tenor - but that is what is worrying me the most - so many uncertainties can happen in 40 years! Rent currently is £1100pm and savings has been around £3800. Agree with the overpaying part, I feel its better to keep it as an offset and keep it handy in case of any uncertainty.

That's the contractual term with a low payment what really determines the full term is how much you pay.

what you get with the longer term is flexibility to any term up to 40y.
Start at 25 years and find you need to go longer its an affordability check.

With the 40y you just drop your payment

As you guys are both heading into 40% sticking the money in the pension and then another fall back is the pension lump sum


The first £1,100 is in reality free as you would be paying it anyway.

£1,100 on £480k pays rent on the money up to 2.75%

the rest of your mortgage payment is buying equity

ACG

The big issue for me is more a case of in 2 years although the LTV may have reduced opening up better rates, it is pretty likely that the base rate will have gone up at least maybe half a percent in that time.

So you are unlikely to see a saving in 2 years time.

You are getting towards the top end of what you can get, but so do most people in their first homes.