Big new mortgage - concerns
Discussion
I don’t know if I’m looking for advice, just to share concerns or to seek other people’s experiences, but I’m struggling where else to share this, so on the basis that I use PH for everything else, thought I’d give it a go.
First some background, family of four, I’m 37, Mrs is 36, two young children, 2 & 1. Currently in three bed semi that we have owned for 9 years, with 16 years left on the mortgage. I work full time, Mrs A does 3 days a week, having returned to work in January this year after mat leave.
We came close to going back to Australia, having lived out there for 2 years when we first got married, a combination of visa changes and wanting to keep family and friends close by now we’re a family of 4 means we finally decided to commit long term to staying in the UK.
Our house sold within a week and shortly after we found a great house just 2 miles from our preferred location, loads of potential, great garden, good schools, plenty of stuff to do as a couple and as a family a short drive/walk/train away.
We’ve been working towards completion on 4 May, the process has been smooth and we’re due to exchange next week.
However, I’m having a major wobble on the finances. Current monthly mortgage payment is around 10% of our gross monthly pay, with 16 years remaining.
On the house hunt, we ended up increasing our budget and finding something that needed a little more work doing to it than we had planned. We have a 55% LTV on the existing house, so going to hold back more of the equity than planned to sort the house, resulting in a 90% LTV on the new property and initially a 30 year term on a 3 year fixed deal. The plan will be to reduce this down via overpayments when possible and reducing the term as and when we agree new mortgage deals down the line.
So in short, we’ll be going from a 16 year mortgage at 55% LTV, with monthly payments at 10% of gross monthly income to a 30 year mortgage for 3 times the current balance at 90% LTV, with monthly payments at 18% of gross monthly income.
I have made my peace with that, given it brings a larger, 4 bedroom, detached house, with a bigger plot in a nicer area. But would welcome any thoughts on it.
What I am struggling with is the prospect of rate rises and where the base rate might be at when our 3 year deal ends in 2021. I know there is no way of knowing what level rates might reach by that point, but having only owned a home during the unprecedented low rates of the last decade or so, I’m finding it hard to get my head around.
Am I just getting cold feet before making a significant financial commitment, or am I over stretching and exposing myself financially given the looming rate rises? I don't know and would welcome PH's observations, thoughts and judgments!
First some background, family of four, I’m 37, Mrs is 36, two young children, 2 & 1. Currently in three bed semi that we have owned for 9 years, with 16 years left on the mortgage. I work full time, Mrs A does 3 days a week, having returned to work in January this year after mat leave.
We came close to going back to Australia, having lived out there for 2 years when we first got married, a combination of visa changes and wanting to keep family and friends close by now we’re a family of 4 means we finally decided to commit long term to staying in the UK.
Our house sold within a week and shortly after we found a great house just 2 miles from our preferred location, loads of potential, great garden, good schools, plenty of stuff to do as a couple and as a family a short drive/walk/train away.
We’ve been working towards completion on 4 May, the process has been smooth and we’re due to exchange next week.
However, I’m having a major wobble on the finances. Current monthly mortgage payment is around 10% of our gross monthly pay, with 16 years remaining.
On the house hunt, we ended up increasing our budget and finding something that needed a little more work doing to it than we had planned. We have a 55% LTV on the existing house, so going to hold back more of the equity than planned to sort the house, resulting in a 90% LTV on the new property and initially a 30 year term on a 3 year fixed deal. The plan will be to reduce this down via overpayments when possible and reducing the term as and when we agree new mortgage deals down the line.
So in short, we’ll be going from a 16 year mortgage at 55% LTV, with monthly payments at 10% of gross monthly income to a 30 year mortgage for 3 times the current balance at 90% LTV, with monthly payments at 18% of gross monthly income.
I have made my peace with that, given it brings a larger, 4 bedroom, detached house, with a bigger plot in a nicer area. But would welcome any thoughts on it.
What I am struggling with is the prospect of rate rises and where the base rate might be at when our 3 year deal ends in 2021. I know there is no way of knowing what level rates might reach by that point, but having only owned a home during the unprecedented low rates of the last decade or so, I’m finding it hard to get my head around.
Am I just getting cold feet before making a significant financial commitment, or am I over stretching and exposing myself financially given the looming rate rises? I don't know and would welcome PH's observations, thoughts and judgments!
I always calculate what the repayments would be at around 5% or 6% and see whether or not we could comfortably handle that amount. IMO in modern times it's unlikely to go above that. It's also unlikely to shoot up to that very quickly either, so even if the prospect of 5% or 6% is a bit daunting, you will have some time to review your options.
18% seems very manageable to me. I think we're at 23% including a "round it up" overpayment and just under 21% without.
The solution is simple. You look into the cost of nursery places for two little ones, and you realise that your mortgage seems like a very small cost in comparison, and that stops you worrying. Well, worrying about the mortgage at least...
Good luck with the move!
The solution is simple. You look into the cost of nursery places for two little ones, and you realise that your mortgage seems like a very small cost in comparison, and that stops you worrying. Well, worrying about the mortgage at least...
Good luck with the move!
XJ75 said:
I always calculate what the repayments would be at around 5% or 6% and see whether or not we could comfortably handle that amount. IMO in modern times it's unlikely to go above that. It's also unlikely to shoot up to that very quickly either, so even if the prospect of 5% or 6% is a bit daunting, you will have some time to review your options.
You're right and I've done that calculation, whilst it would hurt, it would still be manageable. Agree with what you're saying about having time to prepare for it, although would ideally not want to be rate watching all the time, but the alternative is don't move or down size I guess, neither of which is appealing!TartanPaint said:
18% seems very manageable to me. I think we're at 23% including a "round it up" overpayment and just under 21% without.
The solution is simple. You look into the cost of nursery places for two little ones, and you realise that your mortgage seems like a very small cost in comparison, and that stops you worrying. Well, worrying about the mortgage at least...
Good luck with the move!
I know 18% isn't bad, probably more doubling the term and tripling the amount that is niggling at me.The solution is simple. You look into the cost of nursery places for two little ones, and you realise that your mortgage seems like a very small cost in comparison, and that stops you worrying. Well, worrying about the mortgage at least...
Good luck with the move!
Made me chuckle about nursery fees though, thanks!
AllyBassman said:
We're at 28% now that Mrs AB has gone back to work part time after Mat leave.
Like everything, there is often more to the headline numbers. For example, if Mrs AB had gone back to work full time, our precentage would be higher, but child care costs would be considerably more!
Mrs Aussieal and I have already had that chat, and she'd likely go up to 4 days anyway once they were both in school, which would be by the time the 3 year deal finished. Like everything, there is often more to the headline numbers. For example, if Mrs AB had gone back to work full time, our precentage would be higher, but child care costs would be considerably more!
Pah, 18%!
I’m not the best one to advise as realistically we are on 25% and can be a huge chunk more if work dries up.
The simple fact is we found a dream project for us in one of the three most desirable streets in the area and we made the decision to go for it.
I have two schools of thought with such a large financial commitment-we can always sell and downsize or I can cut our cloth to suit.
I think it helps growing up with parents that couldn’t afford amazing holidays and brand new cars on drip-I can go back to that for a few years should we need to and not feel like I’m doing my family wrong.
Once you’ve got it it takes some incredible circumstances for them to take it off you, definitely not unknown of course but finances being tight are way preferable to other family issues such as illness etc
I’m not the best one to advise as realistically we are on 25% and can be a huge chunk more if work dries up.
The simple fact is we found a dream project for us in one of the three most desirable streets in the area and we made the decision to go for it.
I have two schools of thought with such a large financial commitment-we can always sell and downsize or I can cut our cloth to suit.
I think it helps growing up with parents that couldn’t afford amazing holidays and brand new cars on drip-I can go back to that for a few years should we need to and not feel like I’m doing my family wrong.
Once you’ve got it it takes some incredible circumstances for them to take it off you, definitely not unknown of course but finances being tight are way preferable to other family issues such as illness etc
It'll be fine, don't worry. Fix it for 3 years, if you can afford that now you'll still be there in 3 years, at lot can change in that time but probably won't, you could be earning more, your missus might be back at work full time. Don't worry, nearly everyone between the age of 25 a d 45 is in a similar boat.
I’m in the same boat as you with some minor differences. We are early 30s and our LTV now is 85% (would be 75%ish if we could remortgage now) - mortgage now is only 12% of gross pay (16% net).
I’m torn between moving into a bigger place now we have some equity to wriggle with - and resigning ourselves to 30 years (retire at 65) and back up to 90% LTV or remortgaging at a much smaller term and sucking up the ‘wish we had some more space’ house but being mortgage free at 50.
If we moved we’d go from 12% gross / 16% net on mortgage to 20% net / 27% net and that’s beforw we have kids, lose the missus salary (luckily by far the smaller of our salaries)
At the moment our disposable/saveable income is £2.4k a month which sounds loads but then I worry about when we have kid(s) and the impact there and potential rate rises.
I really am torn, it’s giving me sleepless nights!
Good luck with whatever you decide to do, OP.
I’m torn between moving into a bigger place now we have some equity to wriggle with - and resigning ourselves to 30 years (retire at 65) and back up to 90% LTV or remortgaging at a much smaller term and sucking up the ‘wish we had some more space’ house but being mortgage free at 50.
If we moved we’d go from 12% gross / 16% net on mortgage to 20% net / 27% net and that’s beforw we have kids, lose the missus salary (luckily by far the smaller of our salaries)
At the moment our disposable/saveable income is £2.4k a month which sounds loads but then I worry about when we have kid(s) and the impact there and potential rate rises.
I really am torn, it’s giving me sleepless nights!
Good luck with whatever you decide to do, OP.
Thanks guys - appreciate you taking the time to read the original post and share your thoughts and experiences.
Same here LaurasOtherHalf, more than happy to cut our cloth according to our measure if we need to, neither of us having had particularly lavish childhoods. Worst case, I would just take a hit and downsize if we needed to, although doubt it would get to that.
@FredClogs - that's what I keep telling myself, so many people will be impacted by the rate rises, you do wonder how much the MPC would be prepared to hike it.
@Bristol86 - without the kids, I'd be a lot more bullish about it, in fact we'd probably just revert to Plan B and disappear off somewhere on an adventure, which is what we spent last weekend mulling over, even with two toddlers in tow!
Same here LaurasOtherHalf, more than happy to cut our cloth according to our measure if we need to, neither of us having had particularly lavish childhoods. Worst case, I would just take a hit and downsize if we needed to, although doubt it would get to that.
@FredClogs - that's what I keep telling myself, so many people will be impacted by the rate rises, you do wonder how much the MPC would be prepared to hike it.
@Bristol86 - without the kids, I'd be a lot more bullish about it, in fact we'd probably just revert to Plan B and disappear off somewhere on an adventure, which is what we spent last weekend mulling over, even with two toddlers in tow!
Yeah the kid variable is massive. Obviously we don’t even know if we can have kids but if we wait until we know it’ll probably be too late to do anything house wise even if we do decide that’s what we want to do!
Part of me says go for it as we’re lookking for somewhere we can be for the next 20 years. Even with a blip in the market we’re never likely to be risking much with that sort of timescale (worst case stuck on an SVR if we couldn’t remortgage due to being above 90% LTV)
The other part of me has got very used to being able to go out for meals, buy new clothes, take a trip wrhout any worries about ‘can we afford it’ - however it’s a catch 22 as if we do have kids all that’ll be out the window for a while anyway....
It’s a tough call. I suspect in both our cases we’re being overly cautious. It’s not like we’re talking about 50% of our salary after all. And the mortgage is probably still no more (or even less) than the average rental that half our generation will be in forever....
Part of me says go for it as we’re lookking for somewhere we can be for the next 20 years. Even with a blip in the market we’re never likely to be risking much with that sort of timescale (worst case stuck on an SVR if we couldn’t remortgage due to being above 90% LTV)
The other part of me has got very used to being able to go out for meals, buy new clothes, take a trip wrhout any worries about ‘can we afford it’ - however it’s a catch 22 as if we do have kids all that’ll be out the window for a while anyway....
It’s a tough call. I suspect in both our cases we’re being overly cautious. It’s not like we’re talking about 50% of our salary after all. And the mortgage is probably still no more (or even less) than the average rental that half our generation will be in forever....
Well, just to add my thoughts - if it's manageable now, the chances are that it will become more so over time (career progression usually takes care of that).
One overriding factor for me - get yourselves in the best location you can, one that really suits you and is family friendly (good schools, decent like-minded people, scarcity of people shopping in onesies etc).
Once the kids go to school, start making friends it can be a real wrench to move away. Getting comfortably established in a nice 'breeding' area is well worth it. We're in a village and the kids have large circles of friends that they've grown up since toddler age. To us, this is priceless.
One overriding factor for me - get yourselves in the best location you can, one that really suits you and is family friendly (good schools, decent like-minded people, scarcity of people shopping in onesies etc).
Once the kids go to school, start making friends it can be a real wrench to move away. Getting comfortably established in a nice 'breeding' area is well worth it. We're in a village and the kids have large circles of friends that they've grown up since toddler age. To us, this is priceless.
Edited by paul789 on Tuesday 17th April 15:42
@Bristol86 In your situation, I'd say go for it.
If you're feeling like you need more space now, wait until you're joined by one or two children!
By the sounds of it, you are similar to us at the moment in that it's all very comfortable financially and you don't really have to give it a second thought. Make the move now, adjust to the new circumstances and then get ready for the kids once you're comfortable again.
If you're feeling like you need more space now, wait until you're joined by one or two children!
By the sounds of it, you are similar to us at the moment in that it's all very comfortable financially and you don't really have to give it a second thought. Make the move now, adjust to the new circumstances and then get ready for the kids once you're comfortable again.
We're in the process of moving and borrowing another 200k and adding 12 more years to the term.
24% of joint income for the new mortgage payment. That's only an increase of 4% for us as I have always kept the mortgage payments high and the term shorter. So this addition is on the same basis. I could have it over 30 years of course but I'd rather build equity now and re-finance later if required.
24% of joint income for the new mortgage payment. That's only an increase of 4% for us as I have always kept the mortgage payments high and the term shorter. So this addition is on the same basis. I could have it over 30 years of course but I'd rather build equity now and re-finance later if required.
aussieal said:
@Bristol86 In your situation, I'd say go for it.
If you're feeling like you need more space now, wait until you're joined by one or two children!
By the sounds of it, you are similar to us at the moment in that it's all very comfortable financially and you don't really have to give it a second thought. Make the move now, adjust to the new circumstances and then get ready for the kids once you're comfortable again.
Yeah I know ha ha. We have enough space for us both and although we could raise kids where we are, we’re kidding ourselves if we say we couldn’t do with more space. If we knew we weren’t having kids we’d stay put i’m sure. If you're feeling like you need more space now, wait until you're joined by one or two children!
By the sounds of it, you are similar to us at the moment in that it's all very comfortable financially and you don't really have to give it a second thought. Make the move now, adjust to the new circumstances and then get ready for the kids once you're comfortable again.
I think you’re right. I’m waiting to find out if I’m getting my job regraded too which would raise my salary by 12% in Y1 then 6% year on year for 4 years.
Obviously if that happens it would take all the uncertainty out of the equation and I’ll sleep better knowing we can move and have no change in disposable income!
Overall the numbers seem absolutely fine. You can steer test for higher rates but if you’re on a repayment structure then rates can go up quite a bit before the monthly charge begins to look scary given that your only around 20% of gross income at present.
The more obvious risk is actually if you lose your job or become ill. There is insurance available for that and if you are genuinely concerned then taking out a policy to protect from that risk during the early years while you pay down the LTV is easily done.
It’s the hidden risk that is going to catch an awful lot of people out if rates rise a bit over the coming decade. People focus on stress testing the monthly payments but rarely consider that in a rising rate environment lenders are going to be asking for larger deposits when it comes time to roll over that very short term 2, 3 or 5 year deal. And that doesn’t even take into account that the lender may revalue the property 10/15% lower than last time meaning there will be a sudden requirement to find a large chunk of capital to maintain the revised deposit requirement.
I see revised valuations and deposit requirements as the big risk going forward in this new market of very short term loan agreements and it could catch an awful lot of people out. It’s entirely plausible that many people could be double whammied by a revised lower valuation and also a big change in LTV requirement. As such, holding a cash reserve that is at least 10% of the value of the property is arguably the best security for a family man to have for the foreseeable future.
The more obvious risk is actually if you lose your job or become ill. There is insurance available for that and if you are genuinely concerned then taking out a policy to protect from that risk during the early years while you pay down the LTV is easily done.
It’s the hidden risk that is going to catch an awful lot of people out if rates rise a bit over the coming decade. People focus on stress testing the monthly payments but rarely consider that in a rising rate environment lenders are going to be asking for larger deposits when it comes time to roll over that very short term 2, 3 or 5 year deal. And that doesn’t even take into account that the lender may revalue the property 10/15% lower than last time meaning there will be a sudden requirement to find a large chunk of capital to maintain the revised deposit requirement.
I see revised valuations and deposit requirements as the big risk going forward in this new market of very short term loan agreements and it could catch an awful lot of people out. It’s entirely plausible that many people could be double whammied by a revised lower valuation and also a big change in LTV requirement. As such, holding a cash reserve that is at least 10% of the value of the property is arguably the best security for a family man to have for the foreseeable future.
How many people can genuinely afford to hold 10% of their house price in cash though when raising a family?
I don’t disagree - but I think if you’re not one of the lucky few that can do that, the way to safeguard is making sure you could afford the repayment comfortably if you do get stuck on the SVR for a few years due to negative equity on paper.
I don’t disagree - but I think if you’re not one of the lucky few that can do that, the way to safeguard is making sure you could afford the repayment comfortably if you do get stuck on the SVR for a few years due to negative equity on paper.
BRISTOL86 said:
How many people can genuinely afford to hold 10% of their house price in cash though when raising a family?
I don’t disagree - but I think if you’re not one of the lucky few that can do that, the way to safeguard is making sure you could afford the repayment comfortably if you do get stuck on the SVR for a few years due to negative equity on paper.
I don’t know. I would consider it perfectly normal but guess it maybe isn’t? Anyone on >70% LTV has to be considering the risk of being asked to front more margin at renewal now we are in a market which conveniently gets to renegotiate terms every couple of years with its clients. I don’t disagree - but I think if you’re not one of the lucky few that can do that, the way to safeguard is making sure you could afford the repayment comfortably if you do get stuck on the SVR for a few years due to negative equity on paper.
As you say those people could fall back on SVR but the rates currently are what, 4-6% with decent LTVs? What are they for 90% LTVs and how far out will they be of base rates are a point or two higher? Would someone with no meaningful cash reserves be stress testing for these kind of levels?
This is why I think it’s the hidden risk that no one is really looking at going forward.
My situation is very similar to the OP here except I am almost 18 months ahead. If there are sudden and significant interest rate rises then we will also be screwed. I try not to worry though.
The priority has to be keeping house prices as they are, or with slight inflation, and interest rates low too. If mortgaged home owners have less or no expendable income then every other business and industry suffers as a result. Poor people don't eat out, go to the cinema, or buy luxury goods. People will also reconsider having children or risk being a further burden on society when those families need financial support. All these things are really bad for the economy both in the short term and the long term.
The priority has to be keeping house prices as they are, or with slight inflation, and interest rates low too. If mortgaged home owners have less or no expendable income then every other business and industry suffers as a result. Poor people don't eat out, go to the cinema, or buy luxury goods. People will also reconsider having children or risk being a further burden on society when those families need financial support. All these things are really bad for the economy both in the short term and the long term.
Well that escalated quickly!
I went on a call for half an hour feeling reassured, came back and now I'm worried about having to front up more capital in order to secure my greatly increased monthly mortgage payment in 3 years
Our plan is to use the capital we're holding back to sort some key bits on the house, which will hopefully add value, even if there is a fall in prices. Another thing where only time will tell though.
I went on a call for half an hour feeling reassured, came back and now I'm worried about having to front up more capital in order to secure my greatly increased monthly mortgage payment in 3 years
Our plan is to use the capital we're holding back to sort some key bits on the house, which will hopefully add value, even if there is a fall in prices. Another thing where only time will tell though.
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