Are we borrowing too much?

Charlotte657

Would appreciate any advice. My partner and I have had very different property experiences to date, and are trying to decide how big a mortgage to apply for.

Me: NHS keyworker. Currently salary 57K, due to go up to 80K in March. Very fortunate for parents to lend me money to buy a first house several years ago, and now have 320K savings through a really good sale in Jan 2020.

Partner: insurance broker, current salary 48K. No mention of furlough/redundancies through company so far, so job seems secure but clearly more risk he could lose it than mine. Involved in a side project that is taking off with potential for new job and salary 60-80K next year, but not confirmed. Has 30K savings.

Very interested in a property that would hopefully be a long term family home on at 725K, so we’d put a deposit down of 300K, and can get a 5 year fixed mortgage for 425K at 1.43%. We’ve moved from London to the country in the North East in Feb, so this property is a small holding with a few acres of land that we have always wanted.

Mortgage repayments would be 23% of combined salaries, but this would go down to 20% of salaries from March. (And will drop further over the years as my salary will definitely increase annually).

Reason for posting is that my partner (who lost quite a bit of money in a property he bought 6 months before the financial crash) thinks we could be stretching ourselves too far and worries a lot about the size of the mortgage. For me it seems very manageable, and although I anticipate rates could well rise in 5 years, even if repayments went up to 5% I still calculate they would be affordable.

We will be thinking about starting a family at some point. Luckily I get good maternity pay with the NHS, but this is a factor too.

Any insights or thoughts based on experience would be greatly appreciated, particularly if there are any considerations which we may have missed perhaps?

enthusiasticsaver

You are borrowing less than 60% LTV and if only 23% of your combined incomes is needed to service it, you have no other debt and your income is likely to increase I would say you are ok but that is in normal times and we are on the brink of a recession so maybe caution should be exercised.  Obviously things to consider are how safe are your jobs, fixing repayments is a good move and if you plan to have children saving  a good emergency fund for when income drops is sensible especially if you are the higher earner.  Also bear in mind the cost  of childcare when eventually you return to work. Maybe if your partner bought with a high LTV and lost money last time this may have coloured his judgement slightly but no harm in being cautious.

We bought at the top of our affordability in the late 80s when interest rates were increasing month on month up to 15%.  I cannot see they will go that high again but the impact on us was that I had to put our two young children with a childminder and go back to work to keep our house to supplement my husbands wages.  I only received a third of my pay as the rest went on childcare but that was enough to cover the difference in our mortgage and once they went to school things got easier.

If you take the worst scenario which is income as it is now that is combined income of £105k per annum so 4.5 times salary.  That is a little high for some lenders but there were still some lending that much a few months back.  Have you got a plan B if your partner is really uncomfortable going as high as £475k ?  You both need to be on board. 

Griffin78

Your situation is not a million miles away from ours in terms of the amounts you are looking at.
We live in a property with saleable value of £550K (low side) and have £190K mortgage with 8 years remaining on a 10 year fix. I'm looking at potential moves to properties in the £700K - £750K value so would have approx £350K available meaning a £400K (max) mortgage requirement. Combined earnings are £120K and we have £30K savings.
The mortgage amount seems huge however the repayments appear quite manageable in your case. I'm risk averse but wouldn't be too worried based on percentage of salary, as comfortable as you can be anyway.
We'd be looking to port the long term fix and get a separate product for the remainder if we can, perhaps a tracker to spread risk. Interested to hear other thoughts.

[Deleted User]

I bought my first property at 18. Im a single mum although my sons are adults now 
own properties worth 1.2 million
retired at 48
I am anti risk adverse and took massive risks that caused sleepless nights to get where I am today.
Property has always been good for me ( Greater London ) although Im not sure Id place my trust in property in the north. 

As long as your jobs ok and you plan to live there many many years go for it, but DO NOT expect northern property to be like the property you had before in London 

chilswelluk

Densol said:

I bought my first property at 18. Im a single mum although my sons are adults now 
own properties worth 1.2 million
retired at 48

Out of interest how did you buy your first property at 18?  When I was 18 I had just started university and earned £4 an hour, which barely covered the rent in a shared house.  You must have walked into a high paid job after leaving school, just to raise a deposit, let alone pay the mortgage.  How did you manage it at such a young age?

allygate

Everyone will have their own assessment of what is comfortable, but to me it doesn't look like you are borrowing too much.

allygate

chilswelluk said:

Densol said:

I bought my first property at 18. Im a single mum although my sons are adults now 
own properties worth 1.2 million
retired at 48

Out of interest how did you buy your first property at 18?  When I was 18 I had just started university and earned £4 an hour, which barely covered the rent in a shared house.  You must have walked into a high paid job after leaving school, just to raise a deposit, let alone pay the mortgage.  How did you manage it at such a young age?

When I was at Uni in London in the early-mid 2000s, we had enterprising overseas students (mostly from Asia, some from Africa) working pt jobs at KFC/McD who took advantage of the relatively loose lending criteria at the time to buy properties in east London at 100% mortgages and let them out by the room. It's hard to believe now but you literally did not need to put any money down to buy a house. By the end of the course we had a handful of multi-property landlords in our class.

Needless to say, the rest is history. Some of them cashed out their humungous capital gain over the following years, others are still comfortably living off the rents, both here and abroad.
Of course there was the element of luck (being in the right place at the right time) but also the fact that they were willing to take the steps (and risk) required to buy and rent out these properties.

Was there anything stopping me from doing the same? Not financially, just the working class risk averse nature that was ingrained in me. Study well, get a job with a regular income, etc etc.

Not saying one approach is wrong or right, it is what it is and it takes all kinds to make the world.

RelievedSheff

We work to a percentage of our take home pay that we are prepared to pay towards mortgage payments. In our case we work that at being 25% maximum.

RelievedSheff

chilswelluk said:

Densol said:

I bought my first property at 18. Im a single mum although my sons are adults now 
own properties worth 1.2 million
retired at 48

Out of interest how did you buy your first property at 18?  When I was 18 I had just started university and earned £4 an hour, which barely covered the rent in a shared house.  You must have walked into a high paid job after leaving school, just to raise a deposit, let alone pay the mortgage.  How did you manage it at such a young age?

It is possible. I was 20 when we bought our first house. There were two of us, a couple, on the mortgage though which helped with the affordability.

I guess a lot depends on house prices where you are based. We are lucky that house prices here are very affordable when compared with average wages.

getmore4less

£425K at 1.43% 
term payment left at 5 years
25 £1,700pm £352k
30 £1,450pm £366k
35 £1,300pm £377k
40 £1,200pm £384k

£57k  net around  £3k with some pension

Go longest term you can to get the contractual payment down.

Can survive on 1 NHS wage if you keep expenses down.
Loads of headroom with 2 working to overpay and save and max out pensions.