Mortgage/Moving Advice Please

Bristol80

Hi All

Long-time lurker here and looking for some independent views on whether or not moving home is a good idea for us.

The summary of our position is that we purchased our house, a relatively small 3 bed semi, three years ago with a ‘normal’ 95% LTV mortgage (i.e. NOT help to buy). We took out a mortgage for £228k and the property was purchased for £240k. FYI at the time we were both 29 and that was a 35 year term, with a view to taking us up to retiring around 65 y/o (but always with a plan to massively overpay as circumstances allow) and reduce.

Fast forward 3 years – outstanding mortgage is £217k and the property is worth approx. £285k and so we’re at c. 75% LTV.

I’m really pleased with this as obviously it means we’re on a much better rate now (and have been for the last year) compared to when we purchased at 95% LTV.

Our mortgage payment is currently £721 and represents 16% of joint take home pay (12% of joint gross pay).

We would like to start a family and are considering trying to take a step up on the ladder and get into a bigger property. The trouble is how much more we’d need to spend to make it worthwhile. I keep going back and forth between ‘we can easily afford to do this’ and ‘it’s not a good idea’ so I’d appreciate any gut feeling on things based on the information I provide….

To make the move worth doing we’re looking at needing to spend somewhere in the region of £360k - £390k, and realistically we are only going to be able to use a 10% deposit. Thus will be back up to a 90% LTV mortgage (and a considerably bigger mortgage, to boot). We are looking at needing to borrow £325k - £350k which even at the low end is a 50% increase in total mortgage borrowing compared to now.

My main concern is not the mortgage payment – even on a 5 year fix the new mortgage payment would put us at around 29% of joint net pay (21% of joint gross pay) – so for 5 years there’d be no issue. My main worry (and perhaps I’m being overly cautious) is what happens after year 5. Getting stuck onto a lenders SVR would be a big shock in terms of what we’re used to paying and if the market took a dive then at 90% we’re going to be a LOT more exposed to that risk than at 70-80% LTV.

In terms of absolute numbers, our current, truly disposable income after paying the mortgage, all bills, food, fuel etc. is £2,400p/m (just over 50% of take home pay). This leaves us very comfortable and in a position where we never really have to worry about spending, meals out, the odd luxury etc.

If we were to move tomorrow and fix for 5 years on a property worth £375k with a 30 year overall term at 90% LTV, then the mortgage payment would go from £721p/m to approx. £1,300 p/m – and we’d be looking at our disposable income falling to approx. £2,000p/m for the next 5 years (before we consider the loss of a salary if we were to have a child – though luckily two-thirds of our take home pay comes from me)

In my head that still leaves us with plenty of wiggle room - £2,000p/m after paying the mortgage and all bills and feeding ourselves sounds like a good sum to me.

But on the flip side, there’s no getting away from the fact that we are committing ourselves to another £100,000 of borrowing and almost doubling the mortgage payment from what we’re used to. Just writing it is giving me a headache thinking about the sheer scale of that number!

My head tells me the sensible thing (probably) is to move, and get into the best place we can afford as soon as we can do it, but I can’t get away from the fact that if we stay put we could realistically be mortgage free at 50 and enjoy a better disposable income.

Any advice, thoughts, comments, questions…would be much appreciated.

Thanks!

ACG

I did what you are looking to do last year.
The jump in Mortgage repayments is not a million miles off double what I was paying and by the time I remortgage next year, it will be double.

That is a big jump, I went from having a Mortgage that I did not even think about to a Mortgage that I now know I have - if that makes sense.

The way I kind of got my head around it was with a few things:
1) We needed a bigger house as we had a baby last year.
2) We wanted to move to a nicer area because we had a baby on the way.
3) If I was paying rent on my old house, it would be costing me more than the mortgage on my new house.
4) If I dont move now, it is probably going to cost me more in the future.

As it happens, house prices seemed to jump up by about £10k in our area more or less after we moved (obviously we brought something to the area :P) but since then it has stayed fairly flat.

I suppose for me I would be thinking what do you think will happen to house prices in the near future? If you think they will go up then now is the time to buy. IF you think they will stay flat or decrease, then I would probably hold fire.

The other thing to possibly do is to overpay on your Mortgage now. Every bit you over pay now means your mortgage will be lower when you do upsize. Obviously it will not make a massive difference to the next mortgage if you are only overpaying by say £50 for the next 6 months, but every little helps as Tesco (?) tell us.

Bristol80

ACG wrote: »

I did what you are looking to do last year.
The jump in Mortgage repayments is not a million miles off double what I was paying and by the time I remortgage next year, it will be double.

That is a big jump, I went from having a Mortgage that I did not even think about to a Mortgage that I now know I have - if that makes sense.

The way I kind of got my head around it was with a few things:
1) We needed a bigger house as we had a baby last year.
2) We wanted to move to a nicer area because we had a baby on the way.
3) If I was paying rent on my old house, it would be costing me more than the mortgage on my new house.
4) If I dont move now, it is probably going to cost me more in the future.

As it happens, house prices seemed to jump up by about £10k in our area more or less after we moved (obviously we brought something to the area :P) but since then it has stayed fairly flat.

I suppose for me I would be thinking what do you think will happen to house prices in the near future? If you think they will go up then now is the time to buy. IF you think they will stay flat or decrease, then I would probably hold fire.

The other thing to possibly do is to overpay on your Mortgage now. Every bit you over pay now means your mortgage will be lower when you do upsize. Obviously it will not make a massive difference to the next mortgage if you are only overpaying by say £50 for the next 6 months, but every little helps as Tesco (?) tell us.

Thanks. Pretty similar to me and the way I see things. The big thing is obviously not knowing what is going to happen with prices. Thats why I would go 5 year fix and try and use that to safeguard against anything turbulent in the next couple of years but honestly I have no idea.

The thought of paying the bigger mortgage for 5 years only to then not make a dent in, or even worse, regress the LTV, and get stuck on an SVR in 5 years time at 5-6% or whatever is scary. I!!!8217;m pretty risk averse these days but also I don!!!8217;t want to scare myself out of something that!!!8217;s perfectly doable by over analysing and scaring myself into paralysis!

Bristol80

Oh and I should add that if we do move, we are planning on staying put for a VERY long time (20 years or more)

ACG

If you go with a mainstream lender and keep up with repayments, there is no reason for you to get stuck on the SVR. But in 5 years, who is to say the normal rates will not be 5%?

Bristol80

ACG wrote: »

If you go with a mainstream lender and keep up with repayments, there is no reason for you to get stuck on the SVR. But in 5 years, who is to say the normal rates will not be 5%?

But say prices fell and in 5 years time the LTV at remortgage time was 91%....wouldn’t that prevent me from remortgaging to another lender and essentially getting another fixed period loan? Or will the existing lender offer a retention rate that’s better than rolling onto the SVR?

I’ve only ever been through a remortgage once and as we jumped from 95 to 85 LTV we changed lenders and got a remarkably better deal.

ACG

The current lender may offer you a retention deal, they may not. Very difficult to answer as we do not know the lender, what the economy will be like, the lenders appetite for lending and so on.

Bristol80

Yeah that!!!8217;s fair enough.

I!!!8217;m probably being over cautious - I would hope that after 5 years even starting out at 90% there!!!8217;s little chance of not being at or below 90% again in 5 years time.

Assuming £375k purchase - so £337.5k mortgage and 2.49% - in 5 years time the O/S balance with no overpayment would be just over £300k so realistically prices could fall 10% and still keep me at or below 90% LTV

Trillain

A few things jump out at me.
I gather your combined income is 72k. The amount you want to borrow is over 4.5x, is this going to be achievable?
You have 68k equity in your current home, but only want to put down a deposit of 35k. Where is the rest of this going?
Lastly you have high disposable income now, but you haven't overpaid and haven't saved for a deposit. Perhaps you should try living as if you have a 1.3k mortgage payment now!

Bristol80

Trillain wrote: »

A few things jump out at me.
I gather your combined income is 72k. The amount you want to borrow is over 4.5x, is this going to be achievable?
You have 68k equity in your current home, but only want to put down a deposit of 35k. Where is the rest of this going?
Lastly you have high disposable income now, but you haven't overpaid and haven't saved for a deposit. Perhaps you should try living as if you have a 1.3k mortgage payment now!

Hi Trillain

Our broker pointed me towards accord mortgages affordability calculator. Based on our info the max loan was c. £365k so I think we!!!8217;re in roughly the right ballpark (we have no other debt or finance commitments besides the mortgage)

The exact amount of equity used in the purchase would be dependent on a few factors...purchase price, timing, sale price....I!!!8217;ve factored in taking £15-£20k our for SDLT, legals, EA, moving costs and all that fun stuff.

I don!!!8217;t think realising 15% of purchase price in equity is achievable hence I!!!8217;ve based the calcs on using 10% but reality could be somewhere in beteeen.

Regarding disposable income - we have spent the last year saving for our wedding and honeymoon in Jan - saving £1,200-£1,500 a month as things stand and that!!!8217;s without being strict about meals out, the occasional short break etc.

There may be a more sensible way to juggle things ie use the whole equity as deposit in the new place and then use credit card for various expenses in the following year or so then repay from disposable income but I don!!!8217;t like having personal debt like credit cards and loans if it!!!8217;s avoidable.

We may end up staying put anyway - we want more space but we also like where we are and we!!!8217;re not finding anything that ticks our boxes anyway!

As a further complication I!!!8217;m waiting to hear whether I!!!8217;m getting a change in my job grading at work which if it happens will give me £5k on day one and then take me from £55k to £70k in 5 years which would give us significant extra security around affordability

GoingOn30

A child doesn't really need much space for the first year and if you're not already pregnant that could be 21 months away or more, so why not start your family in your current place and use the next 6-12 months to overpay your current mortgage/save towards a deposit. You need to start putting away some more of your hefty disposable income to know whether you're happy to live that lifestyle in order to get the bigger house.
Getting to 15% deposit before you move on would help protect you against the risk of prices falling and looks perfectly achievable in only a few months if you reign in your spending.