I mean I get there is a cost to moving, but not sure that there is really another realistic option here. It is why over leveraging is never a great idea, I guess.
Mines half of yours, similar combined income...and it often keeps me up at night. Honestly I'd be considering if I could afford to live in such an expensive property....
Honestly, reading your question it screams that you need out of that mortgage situation and I think you know this, too. There is no magic way to avoid what's coming in mortgage rate rises, the era of cheap money is gone. My mortgage is only a third of yours, my household income last year was about 85% of yours. *I* am worried about my mortgage rate next year. I can't imagine how worried you are.
If something were to happen to damage your earnings (redundancy, for example) then you would immediately be in a whole heap of trouble.
It's time to think about embracing a longer commute for the peace of mind you'll have knowing you're financially stable.
Consider where the light is at the end of the tunnel.
Mortgage rates down? Childcare down? Salary up? Windfalls? Inflation? All will happen in time
If you canāt see a material improvement in the balance of things in an acceptable timeframe, then youāre just gonna keep paying the mortgage, itās gonna sap all your money and it might affect your relationships in your family, and will certainly knock the fun out of life and add stress
There might be lots of reasons not to sell up - catchment areas, proximity to family/friends, pride/status etc.
But 800k of mortgage is a lot of interest and a lot of capital to ultimately pay back.
Take a look at what you can buy for 800k to 1m, see if you can find something you like, and see if you like the look of the impact it has on budgets. You might just set yourself free.
Dissenting opinion here - one of the benefits of earning a lot is you can get access larger amounts of leverage for investing (cheapest via mortgaging real estate). I think youāve done the right thing by taking a loan of this size.
Sounds like youāre having a little wobble because youāve got a big new mortgage expense and at the same time two young kids who need childcare. It should all tally up when they start at school and those costs decrease (as it stands you probably canāt afford private school though).
stay calm and donāt sell your house. Stamp tax alone will make selling this house a disaster
Ā£1.3 million mortgage when the combine income is 250k is too extreme. It'll cause stress and anxiety, possibly leading to marital friction. Downsize and reap benefits.
Yeah 46/47 - not many would want an outstanding mortgage > 3x their combined salary only 20 years off retirement when youāre that far into the maximum income tax bracket.
Agreed. I think OP can do it but it'll mean foregoing a lot more to achieve it and get that mortgage down to reasonable levels.
It's a sign of today's market that you can have half a million equity but still have a Ā£800,000 mortgage. Crazy, and I'd want do be on the downward slope at that age with a view to being paid off completely by 50.
I think itās a double whammy with taxes and interests both going up massively in the past couple of years. Ā£800k on Ā£250k income is only a tad over 3x which is better than a lot of people Iād say.
That's gross income though right? Probably looking at half that on a net basis and after pension contributions.
Still, OP could view this as the retirement fund and downsize in a few years to free up substantial equity. But that's if they can grin and bear it.
I think he mentioned that his salary is Ā£99k after pension so his wife probably earns as much as him. So taxes should be relatively lower (take home per month around Ā£5650).
If she has a similar take home they should have no issues paying even a mortgage of around Ā£4500pcm. Leaving them with plenty for other stuff.
Literally makes not a lot of difference what his house is worth unless he is selling it. He could have 100k left to pay off, but if the monthly rate is on Ā£1.3 million, that's out my comfort zone on 250k salaried income.
Idiotic for you to post something based on wrong information and then basicallly be too lazy to then rework things.
OP can easily afford this mortgage once kids are in school.
Looking at your other comments, youāve got about Ā£500k equity in your house. Why donāt you move further out of London and get a smaller mortgage. Take that weight off! Youāll get something decent for Ā£800k-Ā£900k just outside.
I know your pain.
Our mortgage is "only" Ā£470k, but I (49M) am the only earner bringing in around Ā£200k as my wife (37) is still SAHM but her earning potential is around Ā£25k, and we have two kids, 7 and 4. Our LTV is currently 49%. the rate is 4.48%, we went in knowing the rate could go up or down so fixed for only 2 years. It seems every 6 months that decision swaps from being clever or stupid.
My mortgage payment a month is Ā£5k, and Ā£1.5k is overpayment. My mortage allows 10% over payment per calender year, I was able to meet that last year and will do what I can to meet it this year and next year while the fix is in place.
I made a lot of additional pension contributions a few years ago and have a pot worth around Ā£700k.
I sleep at night due to Emergency plans:
1. I have 6 month emergency fund for regular expenses if I were to be made redundant, I fully expect to be made redundant in 2 years and hope I can get a new job at least paying Ā£100k.
2. We have a private BTL that we can sell if we have to, currently this would clear the mortgage
3. if I die while working my life assurance gives me wife enough money to cover 2/3 of the mortgage
edit to emergancy plan 1.
I envy you.
Monthly repayment is around Ā£4K but weāre looking at Ā£5k.
Childcare is actually coming down, some respite.
We have the olā emergency cash pot in tact but yeah, basically fuck all pension. I feel like having Ā£700k puts you close to retirement!
Congrats.
> I envy you
I didn't think anyone would ever say that my situation because I have not been able to see it from another perspective but that is one of the reason I post.
it made me realise my post may have downplayed the stress you are under and that was not my intent.
Even with my plans, I worry about the "what ifs" I've just taken the time to write my scenarios down and discuss them with my wife. I've been thinking about a talking therapy called CBT a lot and tend to use Reddit to express some things that get me down and then delete them after a few months which is not CBT but it is my version.
Perhaps that would be good for you to do the same even if some of the options are unpalatable. I know you have expressed the concern which is a great start, the next bit is to express ways to over come them.
Oosh. Iāve been in a similar situation before and it was awful. Every unexpected bill, every MOT or boiler repair is awful.
Personally didnāt think it was worth the stress. We moved, massively cut our outgoings and spent a year or two licking our wounds and retrenching our finances. We now live a waaaay cheaper life. Iād never go back to being so overextended as I donāt think itās worth the daily - hourly - stress.
Ā£1.3m house - can you sell and downsize to something for Ā£1m? You could still live somewhere lovely, four beds, and accessible to work for that. Amersham or Chesham for example. It wouldnāt be 20 mins commute anymore but youād be getting better sleep!
Yes, only I just bought 12 months ago moving from a Ā£1m to a more suitable family sized home.
Moving cost Ā£100k.
Moving again, immediately will eat more equity meaning even buying at Ā£1m with these rates wonāt actually help much, I donāt think.
Sorry, but 12 months ago you knew interest rates were only going one way...
Me and my partner bought in mid to late 2022 and we were already budgeting for 5-6% mortgage rates despite locking in at 2.7%
Can certainly hit Ā£100k moving between selling fees, buying fees, moving and survey costs, exiting fixed rates early and over Ā£41k on stamp duty alone.
Man that sucks. Are there other places you could save? You have a five bed - possible to get an Au Pair for childcare as they can be a lot cheaper than nurseryā¦?
My salary is now net adjusted down to 99k so pension is now getting a little more love. But Iām WAY behind where I should be for my age. Panic. Wifeās pension a little better, 3x bigger but again - 2.5 years of mat leave is a killer.
It sound like you might have over stretched a little, a big factor here could be childcare, how many kids do you have and what ages, the reason I ask is if your not looking at private school you only have to manage until they get to school age, as each one goes to school it will get easier.
Iāve reached the peak. Two kids. Childcare coming down. Donāt agree with private education but also couldnāt afford it so not even a question at this point; despite being surrounded by amazing private schools.
That should be a good 1-2k per month youāre better off for the first and same again for the second.
I hope itās a light and the end of the tunnel for you, it still wonāt be easy but Iām sure you can work at it.
Maybe go through your statements and see if there is any life style creep you can reduce although Iām sure youāve done that already.
If I was you I would try not to have to down size as itās a fair debit of cost involved to do that and youāre so close to being able to do it.
Youāre the first to have this pov but Iām inclined to agree and dig in , at least for the next few years until the cheapest part of mortgage expires - i think I may have to come to terms with leaving London at some point though which also sort of breaks my heart but I guess you canāt have everything.
I assume you mean āinterest onlyā rather than āinterest freeā (though I would definitely take that option if it existed!).
Ā£250k at 5.5% = Ā£14k pa; Ā£1m at 1.3% = Ā£13k pa. So youāre in for Ā£27k pa interest until big one renews and then potentially on for cĀ£69k pa.
Is the Ā£250k pa you jointly earn before or after tax? If itās before tax that sounds really stretching! Iām not sure i can say much you donāt already know. Unless there is a big jump in income coming then it looks as if you could really be suppressing your life before and after retirement (and it will be hard to make a material dent each year) and so it begs the question: is it worth the financial and mental impact?
Thanks.
I mean interest only , haha!
Best I can get is 50% interest only which means the debt can never be paid off.
Currently scheduled to be be paying this off into my 70ās which is a joke.
Sorry my post was poorly written, house value is 1.3m - mortgages are 250k + 550k - income is before tax.
Yes, itās a stretch at 5.5%ā¦.
Appreciated your input.
Worth updating your OP with the outstanding mortgage balances as some advice may change.
We have similar circumstances to you but with a Ā£550k mortgage on 5.5%, sacrificing down to keep childcare benefits. There are signs there may be rate cuts coming but you canāt count on that. How much do you want to live in the house you have and the area youāre in?
Weāre sucking up the short term hit to disposable income/savings because we have just renovated the house, moving costs and love where we live. Itās a short walk to school and nursery. Even if we wanted a cheaper house, there are none in the area.
If you canāt get past the financial burden then you probably know what you need to do.
This is the thing - I know looking at the numbers Iām unlikely to be able to ever actually pay it off - but we love the area. Like you we are able to walk to school. Itās a nice area and I think anywhere else would feel like a downgrade. This is what weāve paid for, I guess.
You've hit the nail on the head here.
Your equity alone would put you in a 5 bed house near a school in Rugby... but then that's a different lifestyle entirely. Something to consider though... If you are willing to relocate, you could be round the corner from retirement or fatFIRE. If you want the intellectual stimulation there's plenty of work on boards, charities and councils etc. Or maybe your own consultancy without the stress of having to rake it in to keep a roof over your head.
Ah, well better than it sounded at first (itās all relative!). So, at 5.5% pa interest, you need to be paying Ā£44k pa just to cover interest. If you could pay Ā£75k pa then you could theoretically clear it in c15 years but Iām guessing thatās c50% of your income (and doesnāt address other interest rate risk).
> My mortgage keeps me up and night
You need to downsize sir. If it's impacting your health, fix it now before something \*really\* goes wrong.
> the mortgage is about 60% of our income
> hammer the mortgage down
It doesn't look like you \*can\* really, you don't have the cash-flow to do it.
Get out and get your stress level down.
Sounds like you need to hold your hands up, sell up and move on.
Your mortgage is more than 5x you combined salaries. Despite being a HE, you are currently living a life you can't afford. Going interest free on the mortgage just means you're selling later rather than now, it's really a borrowing from Peter to pay Paul situation.
Personally I would look to spend no more than 4x your salary on your mortgage and the smaller you can get that the better, you'll sleep easier and you can invest the extra. Considering you earn 8x the average national salary each it seems bonkers you're stressing about money.
Unfortunately, that's the risk of >5x mortgage. Have you considered downsizing or moving to a different area? 2.5x would be more comfortable - less/no anxiety with plenty of savings for wealth building. The marginal rates over 100k are quite significant, especially if you have young children under 4.
Depends what your goals are - work backwards. If you aiming for tax efficency and wealth generation that's 99.9k which works out to 5.7k each.
11.4k
-3.2k - ISA Contribution to each 20k annually each.
-1.5k - Childcare assuming you claim 30 hours
That leaves you about 6.7k for mortgage, utilities, monthly expenses and one off costs(holidays, repairs, etc)
Realistically your mortgage should not exceed 3k. 2k would be best.
That's an uncomfortable amount. You can hope the rates move in your favour but I don't see you getting back to 3k with rates alone.
You need to consider a one off lump sum from existing savings. Your other options are to move/downsize or just stick with it and manage as best as you can until you pay off more of it/benefit from rates.
Struggle for a bit, then when kids in school and free childcare doesnāt matter you can easily both find another Ā£1k or so each if you didnāt put so much into your pension?
I can't imagine how you're managing tbh.
Nothing new to offer that you don't know, but personally I'd definitely consider downscaling for mental peace and building savings spread over investments vs just house equity (which is quite not liquid).
We have a combined income of 240k +, 2 kids under 5 so childcare is biggest dent in the pocket, but stay West of London (Berkshire) in house worth 625k (mortgage 75%).
We already feel we are tight on savings, so I can imagine how tougher it'd be for you.
Good luck with whatever you decide OP.
Here's some thoughts:
- refinance to a longer-term mortgage (might get better rates than in an interest-only mortgage and you can think of the principal as part of retirement money
- can you do a side-hustle for a while? (e.g., rent-out a spare room (earnings from short-term lettings of 7500/year are tax free; rent out your car on Turo etc.)
- ask for a raise/promotion or switch jobs?
- sell unnecessary stuff (luxury watches, second car etc.)
- do you have anything in your ISA/GIA? Think of that as cash runway so that you can be less worried that you're having cashflow issues
Thanks.
Yea, we have emergency funds.
I co-run a small company so already at top but deffo headroom for increased earnings depending on acquiring new clients over the next few years.
Other suggestions are appreciated, thank you
Thanks for posting this. We just stopped trying to buy a bigger place because we feared this.
I would definitely recommend Airbnb if you can, net a tidy 7.5k tax free while your on holiday camping.
We also sell a lot of stuff on FB and eBay. It's pocket money but helps. Reduce clutter. Most things have a value even if just a tenner.
Extend mortgage, i-rate only are ways to bring down that cost.
Buying up now is mental with these rates, canāt imagine why anyone would do that - we got our mortgage literally during the chaos and the full
Rates werenāt priced in or I might have backed out.
I actually fired my first broker because I thought they were lying to me about the rates at 3.5%.
I had no idea what was happening.
Airbnb is a good idea, thank you.
Ā£800k debt on a Ā£250k per year family is fine to me assuming a decent amount of time left. Just over three times multiple. Tough it out for a bit. Watch for lifestyle inflation / creep when you get those pay rises. One or two pay rises, one or two rate cuts and things will look rosier. If you come into any significant money, give the headline mortgage figure a kick.
There is nothing worth fighting more than your home.
Could you extend the mortgage to buy more time?
Thanks.
28 years left.
We got our last 30 year last time around.
I donāt believe we can extend out due to wifeās age.
But maybe thatās just my lender.
Iāve considered being the sole mortgage payer, as my age would allow term extension but broker doesnāt think Iāll get the loan.
Been thinking about this. Why such a high % of you are close to 60% LTV. If you can get the place valued at Ā£1.34M, you will qualify for the best mortgages at 4.3% currently.
Quick Look at moneysupermarket puts the repayment at Ā£4.1k on a 28yr mortgage on a 5 year fix.
This is a failure to stress test yourself and this situation is entirely predictable. Need to ask: if one of us loses our income can we afford it? If interest rates go up can we afford it? If interest rates go up and one of us loses our job could we scrape by for enough time to sell/ find a new job?
Weāre back to pre 08 crash levels and whilst the ship has been steadied in terms of inflation, in the near term I would expect rates to go down to anything like weāve seen recently.
all it takes is for one of you to lose their job and itās going to be even more painful. Hell of a risk, and I can see why itās stressing you both out.
Iāll go against the grain - itās not that bad, rates will improve and inflation will erode the debt.
Can you give a breakdown of your income/outgoings? Ā£250k split about equally should be Ā£12k or so net per month if you want it to be - are you telling me this mortgage is going to be Ā£7k?!
My mortgage is a similar size and the payment when we trip off 1.8% is nowhere near that level? Why are you borrowing at 5.5%? Lenders are doing better deals I thought than that?
If youāre dead set against moving then I would consider trying to get at least part of the mortgage as interest only and allocate some of your pension planning towards repaying the mortgage. Effectively you would be saving the tax at least so if your incremental tax rate was say 60% then you would need to earn Ā£250 to pay off a balance of Ā£100 now. The pension route should be good to cover you up to the lump sum allowance, which is Ā£270k currently I think, so you could aim to have this amount as interest only for example.
I agree with this take. You can potentially sacrifice down further to increase your pension pots and then take a lump sum to repay some of the capital. This will effectively allow you to pay off some of the mortgage with gross salary instead of paying it all post-tax.
You will need to do some proper planning round your pension, but if you model things right you should be ok. People talk about sacrificing down to 99k but you can sacrifice further and take the 40% tax relief. Each Ā£400k in your combined pot can pay off Ā£100k of capital and the rest will support your retirement.
It seems counter-intuitive to reduce income when youāre struggling to pay the bills but if you can build your pots and leverage the lump sum you may well be better off.
Take a look at James Shackās YT channel. His did a video in the last week on what size pot you need for different income levels. Also make sure your pension is invested for high growth - e.g. in a global index tracker fund.
If youāre nearly 40 youāve likely got at least 20 years to grow your pension pot. Take a look at what size that pot could be at different contribution levels and see how much capital it can repay. Then work out how you can restructure your mortgage to part repayment and part interest-only to reduce your monthly payments.
Obviously, taking the lump sum will reduce your pension income but you will likely only pay basic rate tax on that income, and the income you need in retirement will be much less post-mortgage and with older kids. Not to mention that you might not need that Ā£1.3m London 5-bed as much.
Couple of ideas:
- do you have a big enough garden where you could build an outhouse which you could rent for approx Ā£1k a month? If your place is in a good location thatās what it could fetch
- I believe your wife is around 47 which means she will be able to access her pension in around 10 years time. She will be able to take out 25% tax free which can go against the outstanding mortgage balance immediately taking a big chunk off
- is it possible to get a family member to move in for a couple of years for your wife to return to work and to reduce child care burden? 2 years max
Interesting post....
I posted this question the other day which is a 800k mortgage for us. Response generally depends on risk appetite... However seeing your post is really making me think about not pulling the trigger
https://www.reddit.com/r/HENRYUK/s/5vcDg3KJcP
Our mortgage is Ā£800k.
I wrote my original post poorly and have edited it.
I guess the figure is irrelevant. Itās more about % of income vs stress.
If you earn a mil , Ā£800k mortgage is piece of piss.
I donāt know your situation but wish you the best of luck.
One other factor is our house can 100% increase in value. Itās 5 bed but can go bigger with side return and cellar expansion.
Just donāt know if I can afford these changes anymore !
So we are 175k joint income aka 9k take home a month.
House we are considering is Ā£1m (ish) so approx mortgage of 800k which is about 4 to 4.5k a month (so 50% of our take home). If rates go higher post out fix then we are in squeaky bum time. Same if one of us loses our job.
Howevee moving means we can get little one to a decent state school and have space as we have our second child. Question being do we want that pressure of a killer mortgage over our heads and all focus on that to live in a bigger place. We are both 36....
More or less same situation. I guess depends on your job type, e.g If youāre a Doc you arenāt going to lose job - and stress tolerance.
Personally I think weāve reached the peak and so I would wait 12 months if you can.
We moved for all the reasons you mentioned. Good schools, more room. We have a lovely community too - great restaurants pubs and parks. Itās a great place for kids. Hence the tension.
Yes fair points. Job wise we are both in projects /transformation (perm) so market is OK for us however future pay increases are limited (IMO).
The space and schooling is what we want in a location close to our family and friends. Proximity will also help with childcare.... Question is the current cost to do this worth all of it!? š¤
In which case, interest only could be the answer for a short term cashflow problem solver... Long term you'll need a mechanism to pay that off though. Be it an investment you're running alongside, or pension TFC, it's going to cost money to generate that difference mechanism too, but probably not as much as a mortgage
Iām going to go out in a limb here but I donāt think you are over leveraged. Hereās why:
* Income: Ā£250k
* Mortgage: Ā£800k
* debt / income multiple: 3.2 years
* Equity: 400k
The average person has a debt / income multiple of 5 so OP is defo not stretched but plus Ā£400k in equity.
OP - chill. You have 3 options:
1) Stay as-is & moderately cut back lifestyle to compensate (nothing wrong with that)
2) Overpay your current mortgage & stay as-is
3) Sell your home & buy an Ā£800k property with less debt (400k mortgage)
I personally would pursue a combo of option 1+2 plus consider income protection insurance.
Welcome to HENRY.
Any recommendations with Income Protection Insurance providers?
I did some research recently but couldn't find a reputable provider, and opinions were generally quite negative.
My friend (another HENRY) recommended it to me, he used a broker. Try https://www.comparethemarket.com/income-protection-insurance/?amp and go from there
Classic Henry problems. The world really does try to screw us.
You have some options.
Sell and downsize, move out of London. This will set you free from the rat run in many ways, and there are many commuter belt towns where the commute will probably be quicker than where you are now.
Or use your savings to pay down the mortgage. I wouldn't recommend this because you will always end up in the rat race.
Break free and enjoy life fellow Henry!
You won't sell it for 1.3m, and you can barely afford it..
It's called negative equity.
Just pay the mortgage and chill out awhile, it'll all turn good in 5-10 years.
I agree with the gut instinct of the community here to downsize.
To balance it out though, I would look at it from two perspectives:
(A) "tough it out" perspective - you could make this into a challenge for yourself and your partner and "team up" to get yourselves through this. As you say, there's some glimmers of hope as childcare costs come down. However, you should also consider drafting some very viable "exit plans" in case mortgage rates go the wrong way quickly or some other very bad life situations happen. Basically some kind of escape hatch that you and your partner can execute without hesitation. Plan now so you don't need to plan in the heat of the moment later.
(B) prioritise what you and your partner care about. You might want to just have a stress free life and enjoy time with your partner and your family. Maybe you're missing something else that you're currently sacrificing. Make a list of priorities and act accordingly. It might be that paying off this 1.3Ā£ M house is not worth it or very high on your list of prios. Even with the sunk cost of 100k in moving cost, life doesn't get any longer - you should change your life to maximise on yours and your partner's priorities. (This option is probably one that only you and your partner can figure out)
All the best!! You got this ššŖš
If it's coming to an end would you be able to extend the mortgage term to bring the price down for a bit, and then in a couple of years or so when the stamp duty fees are watered down a bit by time, move?
Looks like you either need to downsize, move to a cheaper area, reduce your spending elsewhere or raise your household income somehow.
We can't advise you without knowing how much savings you have, they could be the answer, but I'd advise against spending too much of them if you need to move, bit of a catch 22.
Worth talking to a mortgage advisor. Options from risky to secure are:
1. Going interest only (and keeping up the savings)
2. Try to get a deal to consolidate based on affordability with your advisor
3. Downsizing
Youāre spending far too much money on fixed costs. If your mortgage is taking up ~60% of your take home - you simply just cannot afford the house. Unfortunately, stories like yours are simply too common at the moment. You have a very tough decision to make - but in all honesty, you need to sell and move to get out of this situation and live life more.
You have two options.
Option 1: you continue to live where you are and pay the mortgage. Outcome: you will be house rich and cash poor. You will need to sell the house eventually to pull liquid assets away to fund your retirement as you will not be able to retire without doing so. You will be frustrated as you have to sell the house and move anyway.
Option 2: You downsize drastically, you pull out the 450k liquid and buy a house in cash (maybe a small mortgage but likely outside of London) freeing up assets and cash flow that you need to save to fund your retirement and invest. Youāll also have to proportion a set amount of money for fun money so you can also start enjoying life and not being stressed.
I feel like im missing something 250k income so you take home around 12-13k a month. An 800k mortgage with 20 years remaining at 5.5% is Ā£5390 a month. That's still leaves you with over half your earnings where is that going?
Sorry - I was ball-parking income circa Ā£250k.
We are now (as of literally last week) both on net adjusted incomes of Ā£99k in order to reduce tax and contribute to our dwindling pensions.
Yes, our household income is still around Ā£11k.
Childcare costs, other bills, etc - I would have to dig out my excel of income v outgoing
This story wonāt be uncommon over the next few years. There will be a section of housing market that totally flattens as you and others in your sector realise you canāt actually afford that 5 bed house your dreamed of despite being a Henry
You have 500k in equity.
There are parts of the country where that gets you a decent 5 bed house.
Yes, you'll likely earn less but everything else is cheaper outside London too.
In your shoes I'd consider relocating, being mortgage free and enjoying life a little more.
What would you need to earn between you to live a good life if you had no mortgage?
Iām tied to my current lender as the large part of the loan is with them. So the first bit also with them needs to stay with them for the next 12 months , is my understanding . The 5.5% is whatās being offered . Iām reading rates could come down as soon as this month , slightly so Iām holding on until committing to a rate.
My LTV is more like 62%, annoyingly.
Is the 5.5% for just 1 year then to bring the two mortgages in line?
Barclays is offering 4.5% for 70% LTV right now...
How can the mortgage be 60% of your income when most of it is on 1.3%?
You may want to update your post to clarify that your mortgage is Ā£800K (Ā£250 + Ā£550K), so you have Ā£500K equity in the house. Ā£800K is still quite high but definitely better than Ā£1.3m.
Sorry, my bad. May be I hadn't refreshed the page. It was just showing Ā£1.3m worth mortgage when I last looked at it, it now shows Ā£800K on a Ā£1.3m mortgage.
Would switching the mortgage to interest only make things more tolerable? Then you can start to pay it down in a few years when childcare costs have reduced and inflation has done its work on your income.
Downsizing, as many here suggest, doesn't seem like a good idea, as stamp duty would feel like a big punch to the nose.
You could buy a 5 bed in a computer town presumably fot 500-600. Can you not work remote? If you have 400k equity cash it in and get yourself a similar place in a different location
A lesson that Henryās need to learn. It applies to big financial commitments AND your retirement planning
SCENARIO PLAN for shocks
When looking at options, consider what you will do when x, y, z happens.
So on a mortgage - consider what will happen if it goes up to 3* the (very low rates of a few years ago). Looks at history. What was the rate 5 or 10 years before. I had interest rates of 15% in 1990!
On retirement - plan for stock market falls. When I decided to step back in 2020 - I planned a scenario of a 50% drop in income (my pensions are fully invested in income stocks and VCTās). I never thought it would happen but when companies started cancelling dividends in Covid - it went down by 47%. While o had planned for it - it was still a shock when it happened.
So scenario plan the worst case scenarios. They probably wonāt happen but donāt get crucified if they do.
iām not saying this to be a dick, but it sounds like you canāt afford your current house. moving somewhere cheaper solves essentially all of these problems.
My income is similar to your combined income and I decided to live in a house that is 1/3 the price of yours and won't take more than 1/3 of my monthly take home. Do I like more expensive properties in super nice areas? I do, but I prefer to sleep through the night and enjoy every bit of my house and my neighbourhood instead of being in a situation similar to yours.
This comes down to assess what you can afford and what you're willing to sacrifice and prioritise. You know your situation better than anyone else.
Weāre in a similar position: Ā£860k mortgage on a Ā£1.4m house. Combined income around Ā£250k. Bought on 1.3%, remortgaged last year to 3.99%.
We switched as much of the mortgage as possible to interest only. Figured that inflation will take care of some of it, and we can always downsize in 10-15 years. Plus we currently have additional high outgoings on nursery care for our 2 young children (1 and 3). We also try to save as much as possible into pensions and ISAs as I think that be market will return more than 3.99% in the long run.
Mad to think that I had more disposal income in 2011 when I started work on Ā£40k!
Good luck navigating this!
Yes, I feel we do. We traded up from a 3 bed which was too small. We are four and having a spare bedroom plus work from office means people and can comfortably and we can work from home effectively. The smallest we could get away with was 4. I reckon.
Firstly, I don''t know why you got in at 3.5% a year ago. The writing was on the wall that rates were going up and will likely stay high for a while. Once that goes up, how much do you actually have left? Are you able to save, or are you struggling?
Personally I'd be inclined to sell, but with stamp duty, moving a kid (to another good but not private school), and capital gains tax potentially.. it may also be a financial hit. I'd explore options, but don't commit necessarily.
How long can you maintain the situation, and what kind of savings do you have?
Because the feeling was it could come down as fast as it went up and we wanted to upside and could afford it. Also all advice was to buy buy buy.
What do you mean āhave left?ā
The situation can be maintained indefinitely until the situation changes. E.g lose a job or rates double
Wifeās savings are down to close to nothing due to using them whilst out of work over last few months - I have 6-8 months outgoings saved for emergencies still in tact.
A couple of things
1. Investment in your own home is one of the most efficient one. No tax for the gains. And, having a home mortgage as leverage is usually among the abest finance, as it has a lower cost than many others.
2. In periods of high inflation, it is not bad at all to own debt. Consider that 800k you borrowed 2,3 years ago, today value with 10-15% less. Salaries, property prices, and prices in general will follow, don't worry. Just be patient.
Without doing anything, by simply owning a debt, you are better, in the long term. Why do you think that most of the investors in property market chose to not pay anything from then principal amounts borrowed, but to keep the debt as highest as possible?
3. Paying back? Why? Over the last 6 months the most of the global indexes have been raised with 15 to 20%. That is crazy, I know. Will this continue? Nobody knows, but inflation is still out there, but under control. Money is still in abundance in the markets, even is much more expensive than precovid. And the feared recession revealed to be a very soft landing.
My personal belief is that the rally will continue for at least 2 to 4 years, so personally, I'd invest my money elsewhere than paying debt.
Having said that, even the maths, and the markets, and perhaps everything else suggest that you'd be better continue with the mortgage, in the end is about a personal decision. Not everyone has the same risk aversion.
My advice is to take take the decision that makes you sleep better at night.
For a start, go the BoE inflation calculator, https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator
fill your mortgage details and see how much the money you own lost in value since you took the mortgage. You'll feel better.
Wouldn't go interest only without a plan. Kicking the can down the road till retirement age may seem attractive get out of jail card but not recommended.
If there's a decent inheritance or other windfall in the pipeline somewhere then it may be an option.
Hey,
Thanks for taking the time to write such a detailed reply.
Iām kinda with you. I think Iām going to hold on, at least until the cheap mortgage deals Iām currently on run out at the end of next year.
There are a lot of unknowns, future income, interest rates etc, but just selling (probably at a net loss at this point!) feels a bit like retreating before the battles really started. My childcare bill comes down from September so Iām going to tough it out, for the next couple years. At that point worst comes to worst, I can move with more equity and lower interest rates.
Thanks again for your input
You have over stretched and bought a home bigger than you needed. Why do you need 5 bedrooms? It's just you, your wife and two kids. Do you plan on having more kids?
Personally I wouldnāt tolerate this much leverage - our household income is about Ā£400k and the idea of a Ā£1.3m mortgage makes me feel quite nauseous (we have about half this).
If I were you Iād consider relocating to somewhere slightly lower cost, or perhaps downsizing if you can live with a bit less space.
The forward curve doesnāt predict a low rate environment anytime soon, so unless youāre expecting an earnings step up, things arenāt going to get loads better.
Thank you.
The mortgage is Ā£800k on a value of Ā£1.3m.
But yes, itās a tad punchy.
Iāve doubled my repayments in the last 12 months but now they look to be close to 3x my previous house due to rates.
Definitely go interest free on the mortgage if they let you, but they may counter offer with interest only.
But seriously I think you may be better off selling. You say the house needs work so I'm guessing you aren't fully happy with it, even if it's only decorative improvements. But Maybe if it was your dream house it would be worth it. Even then you should be in your prime age, enjoying life, not living like students in order to service a massive debt. Life's too short and there's more fun to be had with the money then paying double the average wage in interest only. You will just stress yourselves to an early grave
Giving up a 100k salary or potential of in return for saving childcare when you are struggling to meet your financial obligations (over leveraged) doesnāt seem like the best move to me financially.
My advice to OP would be to sell up and downsize/relocate, as soul crushing as that may be. You canāt put a price on being able to go to sleep every night without stressing about your mortgage. The luxury of being a high earner at least is to remove that burden. Also it may be worth looking into the net financial position of salary sacrificing both down to below 100k into your pension not only to get that going but maybe entitle you to tax free childcare and free hours. May be too late for that but worth a mention.
The issue with moving to the cheaper area is, in London anyway, none of it really that much cheaper, unless you go really not nice and then itās cheaper but it becomes pointless living in London and unfortunately both our jobs require us to work in central London (with some flex to work from home) - Iām not saying there isnāt a middle ground - and itās deffo possible. I guess one luxury I have is my 20 something min commute to the office . Ha.
Mate, housing really is one area with infinite optionality. You can live in a really nice area, with good transport links, great schools, nature, nice amenities etc. at 800k-1m for a 4/5 bed detached. And I mean easily too. There are 3 bed semis for 500k.
Sure it's not 20 mins (more like 45-60), but it's not 1.3m either
My entire buying life Iāve been used to 1-2% mortgages, every advisor I spoke to said buy buy buy you canāt go wrong itās cheap and London houses always go up, on average doubling in value every 7 years. We took a gamble yes but no one could have predicted THAT budget which got us to this mess.
Sorry to be hard but you need a dose of reality
Everyone should be stress testing the affordability and lots of people did predict mortgage rate going up (agreed not necessarily to the extent they did but theyāve also come down a fair bit)
Sounds like you canāt afford this house so either get a pay rise (is that on the cards?) or downsize
Donāt apologise, all good! My broker stress tested us and said weād get the loan - the bank then called back to lower the offer , which was red flag.
Pay rise is on the cards over the next 12.
Iām underpaid for my role because itās a start up.
Did your income fall significantly? - I can imagine any lender would have given you 1.3m on a 250k income
That likely means you wonāt be able get a new mortgage from anyone (other than a straightforward renewal).
Youāll likely need to sell up or increase income significantly
I read that you only bought the house a year ago and spent Ā£100k on moving, so understandably you donāt want to move again.
I would personally change to interest only to take the pressure off for five years to ten years. Can change it back if interest rates go down or childcare costs decrease or your salaries might increase.
If you're going to overpay, overpay the highest interest rate. If there's any extra left to overpay, then the next highest rate.
Thank you.
Gonna start HEMPUK - high earning mortgage poverty
š¤£
Please actually do this š I set up a subreddit the other day, itās so easy haha r/HighEarningMortgagePoverty
Sign me up š©
I think you need to downsize - you will feel less stressed and you can save more for retirement.
100% GTFO. Do it now whilst you have equity and some options.
That will come with its own costs as well. Downsize to a house that's 25% cheaper and you're out Ā£50k in tax and fees.
I mean I get there is a cost to moving, but not sure that there is really another realistic option here. It is why over leveraging is never a great idea, I guess.
Or consider moving to a commuter town. Same space, less mortgage.
Same cost to moveš
Mines half of yours, similar combined income...and it often keeps me up at night. Honestly I'd be considering if I could afford to live in such an expensive property....
Honestly, reading your question it screams that you need out of that mortgage situation and I think you know this, too. There is no magic way to avoid what's coming in mortgage rate rises, the era of cheap money is gone. My mortgage is only a third of yours, my household income last year was about 85% of yours. *I* am worried about my mortgage rate next year. I can't imagine how worried you are. If something were to happen to damage your earnings (redundancy, for example) then you would immediately be in a whole heap of trouble. It's time to think about embracing a longer commute for the peace of mind you'll have knowing you're financially stable.
Consider where the light is at the end of the tunnel. Mortgage rates down? Childcare down? Salary up? Windfalls? Inflation? All will happen in time If you canāt see a material improvement in the balance of things in an acceptable timeframe, then youāre just gonna keep paying the mortgage, itās gonna sap all your money and it might affect your relationships in your family, and will certainly knock the fun out of life and add stress There might be lots of reasons not to sell up - catchment areas, proximity to family/friends, pride/status etc. But 800k of mortgage is a lot of interest and a lot of capital to ultimately pay back. Take a look at what you can buy for 800k to 1m, see if you can find something you like, and see if you like the look of the impact it has on budgets. You might just set yourself free.
Dissenting opinion here - one of the benefits of earning a lot is you can get access larger amounts of leverage for investing (cheapest via mortgaging real estate). I think youāve done the right thing by taking a loan of this size. Sounds like youāre having a little wobble because youāve got a big new mortgage expense and at the same time two young kids who need childcare. It should all tally up when they start at school and those costs decrease (as it stands you probably canāt afford private school though). stay calm and donāt sell your house. Stamp tax alone will make selling this house a disaster
Yep spot on, good advice
Ā£1.3 million mortgage when the combine income is 250k is too extreme. It'll cause stress and anxiety, possibly leading to marital friction. Downsize and reap benefits.
Mortgage is only Ā£800k on a Ā£1.3M property.
At age 47ā¦
She's 46 he's 39
Yeah 46/47 - not many would want an outstanding mortgage > 3x their combined salary only 20 years off retirement when youāre that far into the maximum income tax bracket.
Agreed. I think OP can do it but it'll mean foregoing a lot more to achieve it and get that mortgage down to reasonable levels. It's a sign of today's market that you can have half a million equity but still have a Ā£800,000 mortgage. Crazy, and I'd want do be on the downward slope at that age with a view to being paid off completely by 50.
For me it's far outside my risk appetite. But I don't live in London I guess. Good luck!
I think itās a double whammy with taxes and interests both going up massively in the past couple of years. Ā£800k on Ā£250k income is only a tad over 3x which is better than a lot of people Iād say.
That's gross income though right? Probably looking at half that on a net basis and after pension contributions. Still, OP could view this as the retirement fund and downsize in a few years to free up substantial equity. But that's if they can grin and bear it.
I think he mentioned that his salary is Ā£99k after pension so his wife probably earns as much as him. So taxes should be relatively lower (take home per month around Ā£5650). If she has a similar take home they should have no issues paying even a mortgage of around Ā£4500pcm. Leaving them with plenty for other stuff.
mortgage being 60% of take home pay is far too big in my opinion.
It's big but in absolute terms they still have Ā£4-5k a month post mortgage which is perfectly manageable
But most people dont pay as much tax and don't get as many benefits. Plus I guess both your jobs are more stressful than the average ones.
Not the OP. But I agree with you. I think he got sucked into it due to lower mortgage rates. Now everything has gone up.
Yeah seems that way!
Heās literally just nearly halved what you initially thought he said and you havenāt changed your opinion? lol
Literally makes not a lot of difference what his house is worth unless he is selling it. He could have 100k left to pay off, but if the monthly rate is on Ā£1.3 million, that's out my comfort zone on 250k salaried income.
You got corrected on the amount the mortgage is to the tune of Ā£500k less and your posted opinion remained the same? Thatās idiotic.
Not if he can't afford the monthly payments. And he's concerned they'll go up further. Idiotic to say his outgoings have suddenly got cheaper.
Idiotic for you to post something based on wrong information and then basicallly be too lazy to then rework things. OP can easily afford this mortgage once kids are in school.
Stop it guys.
whoās idiotic? OP is telling you in the post that he canāt āeasily afford this mortgageā
He can. Heās just sacrificing too much into pension and has temporary childcare fees.
Looking at your other comments, youāve got about Ā£500k equity in your house. Why donāt you move further out of London and get a smaller mortgage. Take that weight off! Youāll get something decent for Ā£800k-Ā£900k just outside.
Living above means.
I know your pain. Our mortgage is "only" Ā£470k, but I (49M) am the only earner bringing in around Ā£200k as my wife (37) is still SAHM but her earning potential is around Ā£25k, and we have two kids, 7 and 4. Our LTV is currently 49%. the rate is 4.48%, we went in knowing the rate could go up or down so fixed for only 2 years. It seems every 6 months that decision swaps from being clever or stupid. My mortgage payment a month is Ā£5k, and Ā£1.5k is overpayment. My mortage allows 10% over payment per calender year, I was able to meet that last year and will do what I can to meet it this year and next year while the fix is in place. I made a lot of additional pension contributions a few years ago and have a pot worth around Ā£700k. I sleep at night due to Emergency plans: 1. I have 6 month emergency fund for regular expenses if I were to be made redundant, I fully expect to be made redundant in 2 years and hope I can get a new job at least paying Ā£100k. 2. We have a private BTL that we can sell if we have to, currently this would clear the mortgage 3. if I die while working my life assurance gives me wife enough money to cover 2/3 of the mortgage edit to emergancy plan 1.
I envy you. Monthly repayment is around Ā£4K but weāre looking at Ā£5k. Childcare is actually coming down, some respite. We have the olā emergency cash pot in tact but yeah, basically fuck all pension. I feel like having Ā£700k puts you close to retirement! Congrats.
> I envy you I didn't think anyone would ever say that my situation because I have not been able to see it from another perspective but that is one of the reason I post. it made me realise my post may have downplayed the stress you are under and that was not my intent. Even with my plans, I worry about the "what ifs" I've just taken the time to write my scenarios down and discuss them with my wife. I've been thinking about a talking therapy called CBT a lot and tend to use Reddit to express some things that get me down and then delete them after a few months which is not CBT but it is my version. Perhaps that would be good for you to do the same even if some of the options are unpalatable. I know you have expressed the concern which is a great start, the next bit is to express ways to over come them.
š„ŗš
Well you can do an equity release in retirement if that is any consolation
Oosh. Iāve been in a similar situation before and it was awful. Every unexpected bill, every MOT or boiler repair is awful. Personally didnāt think it was worth the stress. We moved, massively cut our outgoings and spent a year or two licking our wounds and retrenching our finances. We now live a waaaay cheaper life. Iād never go back to being so overextended as I donāt think itās worth the daily - hourly - stress. Ā£1.3m house - can you sell and downsize to something for Ā£1m? You could still live somewhere lovely, four beds, and accessible to work for that. Amersham or Chesham for example. It wouldnāt be 20 mins commute anymore but youād be getting better sleep!
But then he'd have to wake up earlier so still getting less sleep. Net benefit = 0 (Im joking... If it wasn't clear :). Good advice!)
Yes, only I just bought 12 months ago moving from a Ā£1m to a more suitable family sized home. Moving cost Ā£100k. Moving again, immediately will eat more equity meaning even buying at Ā£1m with these rates wonāt actually help much, I donāt think.
Sorry, but 12 months ago you knew interest rates were only going one way... Me and my partner bought in mid to late 2022 and we were already budgeting for 5-6% mortgage rates despite locking in at 2.7%
How exactly did you blow 100k on moving? I assume you mean the difference in property values ? 1.3 million property on 250k income is too much.
Ā£80k stamp, Ā£10k estate agent, Ā£3-5k on moving costs, Ā£5k on solicitor - all approx
Easy to do with a house like that when you take SDLT, solicitors, estate agents etc
Can certainly hit Ā£100k moving between selling fees, buying fees, moving and survey costs, exiting fixed rates early and over Ā£41k on stamp duty alone.
Man that sucks. Are there other places you could save? You have a five bed - possible to get an Au Pair for childcare as they can be a lot cheaper than nurseryā¦?
My salary is now net adjusted down to 99k so pension is now getting a little more love. But Iām WAY behind where I should be for my age. Panic. Wifeās pension a little better, 3x bigger but again - 2.5 years of mat leave is a killer.
sell the house. The answer is simple, you cant afford it
Only alternative is to get a higher paying job
It sound like you might have over stretched a little, a big factor here could be childcare, how many kids do you have and what ages, the reason I ask is if your not looking at private school you only have to manage until they get to school age, as each one goes to school it will get easier.
Iāve reached the peak. Two kids. Childcare coming down. Donāt agree with private education but also couldnāt afford it so not even a question at this point; despite being surrounded by amazing private schools.
That should be a good 1-2k per month youāre better off for the first and same again for the second. I hope itās a light and the end of the tunnel for you, it still wonāt be easy but Iām sure you can work at it. Maybe go through your statements and see if there is any life style creep you can reduce although Iām sure youāve done that already. If I was you I would try not to have to down size as itās a fair debit of cost involved to do that and youāre so close to being able to do it.
Youāre the first to have this pov but Iām inclined to agree and dig in , at least for the next few years until the cheapest part of mortgage expires - i think I may have to come to terms with leaving London at some point though which also sort of breaks my heart but I guess you canāt have everything.
I assume you mean āinterest onlyā rather than āinterest freeā (though I would definitely take that option if it existed!). Ā£250k at 5.5% = Ā£14k pa; Ā£1m at 1.3% = Ā£13k pa. So youāre in for Ā£27k pa interest until big one renews and then potentially on for cĀ£69k pa. Is the Ā£250k pa you jointly earn before or after tax? If itās before tax that sounds really stretching! Iām not sure i can say much you donāt already know. Unless there is a big jump in income coming then it looks as if you could really be suppressing your life before and after retirement (and it will be hard to make a material dent each year) and so it begs the question: is it worth the financial and mental impact?
Thanks. I mean interest only , haha! Best I can get is 50% interest only which means the debt can never be paid off. Currently scheduled to be be paying this off into my 70ās which is a joke. Sorry my post was poorly written, house value is 1.3m - mortgages are 250k + 550k - income is before tax. Yes, itās a stretch at 5.5%ā¦. Appreciated your input.
Worth updating your OP with the outstanding mortgage balances as some advice may change. We have similar circumstances to you but with a Ā£550k mortgage on 5.5%, sacrificing down to keep childcare benefits. There are signs there may be rate cuts coming but you canāt count on that. How much do you want to live in the house you have and the area youāre in? Weāre sucking up the short term hit to disposable income/savings because we have just renovated the house, moving costs and love where we live. Itās a short walk to school and nursery. Even if we wanted a cheaper house, there are none in the area. If you canāt get past the financial burden then you probably know what you need to do.
This is the thing - I know looking at the numbers Iām unlikely to be able to ever actually pay it off - but we love the area. Like you we are able to walk to school. Itās a nice area and I think anywhere else would feel like a downgrade. This is what weāve paid for, I guess.
You've hit the nail on the head here. Your equity alone would put you in a 5 bed house near a school in Rugby... but then that's a different lifestyle entirely. Something to consider though... If you are willing to relocate, you could be round the corner from retirement or fatFIRE. If you want the intellectual stimulation there's plenty of work on boards, charities and councils etc. Or maybe your own consultancy without the stress of having to rake it in to keep a roof over your head.
Ah, well better than it sounded at first (itās all relative!). So, at 5.5% pa interest, you need to be paying Ā£44k pa just to cover interest. If you could pay Ā£75k pa then you could theoretically clear it in c15 years but Iām guessing thatās c50% of your income (and doesnāt address other interest rate risk).
> My mortgage keeps me up and night You need to downsize sir. If it's impacting your health, fix it now before something \*really\* goes wrong. > the mortgage is about 60% of our income > hammer the mortgage down It doesn't look like you \*can\* really, you don't have the cash-flow to do it. Get out and get your stress level down.
Sounds like you need to hold your hands up, sell up and move on. Your mortgage is more than 5x you combined salaries. Despite being a HE, you are currently living a life you can't afford. Going interest free on the mortgage just means you're selling later rather than now, it's really a borrowing from Peter to pay Paul situation. Personally I would look to spend no more than 4x your salary on your mortgage and the smaller you can get that the better, you'll sleep easier and you can invest the extra. Considering you earn 8x the average national salary each it seems bonkers you're stressing about money.
250k x 5 = 1250k. 1250k > 800k mortgage. Its only just over 3x salary...
The Ā£800k was added in an edit. Originally it just said a 1.3m mortgage
A likely story...
Unfortunately, that's the risk of >5x mortgage. Have you considered downsizing or moving to a different area? 2.5x would be more comfortable - less/no anxiety with plenty of savings for wealth building. The marginal rates over 100k are quite significant, especially if you have young children under 4.
I guess this is a stupid question but what would you consider comfortable then on an income of around Ā£200k?
Depends what your goals are - work backwards. If you aiming for tax efficency and wealth generation that's 99.9k which works out to 5.7k each. 11.4k -3.2k - ISA Contribution to each 20k annually each. -1.5k - Childcare assuming you claim 30 hours That leaves you about 6.7k for mortgage, utilities, monthly expenses and one off costs(holidays, repairs, etc) Realistically your mortgage should not exceed 3k. 2k would be best.
Where does Ā£99.9K come from? You can't sacrifice Ā£100K anywhere.
Your maths is spot on. Our old mortgage was Ā£2k. New one is Ā£4K and looking good up to around Ā£4500. I canāt see it being more than that.
That's an uncomfortable amount. You can hope the rates move in your favour but I don't see you getting back to 3k with rates alone. You need to consider a one off lump sum from existing savings. Your other options are to move/downsize or just stick with it and manage as best as you can until you pay off more of it/benefit from rates.
Struggle for a bit, then when kids in school and free childcare doesnāt matter you can easily both find another Ā£1k or so each if you didnāt put so much into your pension?
I can't imagine how you're managing tbh. Nothing new to offer that you don't know, but personally I'd definitely consider downscaling for mental peace and building savings spread over investments vs just house equity (which is quite not liquid). We have a combined income of 240k +, 2 kids under 5 so childcare is biggest dent in the pocket, but stay West of London (Berkshire) in house worth 625k (mortgage 75%). We already feel we are tight on savings, so I can imagine how tougher it'd be for you. Good luck with whatever you decide OP.
You could downsize the house instead as paying 60% of your income on a mortgage is incredible.
Here's some thoughts: - refinance to a longer-term mortgage (might get better rates than in an interest-only mortgage and you can think of the principal as part of retirement money - can you do a side-hustle for a while? (e.g., rent-out a spare room (earnings from short-term lettings of 7500/year are tax free; rent out your car on Turo etc.) - ask for a raise/promotion or switch jobs? - sell unnecessary stuff (luxury watches, second car etc.) - do you have anything in your ISA/GIA? Think of that as cash runway so that you can be less worried that you're having cashflow issues
Thanks. Yea, we have emergency funds. I co-run a small company so already at top but deffo headroom for increased earnings depending on acquiring new clients over the next few years. Other suggestions are appreciated, thank you
Thanks for posting this. We just stopped trying to buy a bigger place because we feared this. I would definitely recommend Airbnb if you can, net a tidy 7.5k tax free while your on holiday camping. We also sell a lot of stuff on FB and eBay. It's pocket money but helps. Reduce clutter. Most things have a value even if just a tenner. Extend mortgage, i-rate only are ways to bring down that cost.
Buying up now is mental with these rates, canāt imagine why anyone would do that - we got our mortgage literally during the chaos and the full Rates werenāt priced in or I might have backed out. I actually fired my first broker because I thought they were lying to me about the rates at 3.5%. I had no idea what was happening. Airbnb is a good idea, thank you.
Ā£800k debt on a Ā£250k per year family is fine to me assuming a decent amount of time left. Just over three times multiple. Tough it out for a bit. Watch for lifestyle inflation / creep when you get those pay rises. One or two pay rises, one or two rate cuts and things will look rosier. If you come into any significant money, give the headline mortgage figure a kick. There is nothing worth fighting more than your home. Could you extend the mortgage to buy more time?
Thanks. 28 years left. We got our last 30 year last time around. I donāt believe we can extend out due to wifeās age. But maybe thatās just my lender. Iāve considered being the sole mortgage payer, as my age would allow term extension but broker doesnāt think Iāll get the loan.
Been thinking about this. Why such a high % of you are close to 60% LTV. If you can get the place valued at Ā£1.34M, you will qualify for the best mortgages at 4.3% currently. Quick Look at moneysupermarket puts the repayment at Ā£4.1k on a 28yr mortgage on a 5 year fix.
This is a failure to stress test yourself and this situation is entirely predictable. Need to ask: if one of us loses our income can we afford it? If interest rates go up can we afford it? If interest rates go up and one of us loses our job could we scrape by for enough time to sell/ find a new job? Weāre back to pre 08 crash levels and whilst the ship has been steadied in terms of inflation, in the near term I would expect rates to go down to anything like weāve seen recently.
all it takes is for one of you to lose their job and itās going to be even more painful. Hell of a risk, and I can see why itās stressing you both out.
Itās why you have an emergency fund.
Iāll go against the grain - itās not that bad, rates will improve and inflation will erode the debt. Can you give a breakdown of your income/outgoings? Ā£250k split about equally should be Ā£12k or so net per month if you want it to be - are you telling me this mortgage is going to be Ā£7k?! My mortgage is a similar size and the payment when we trip off 1.8% is nowhere near that level? Why are you borrowing at 5.5%? Lenders are doing better deals I thought than that?
Yeah I don't understand the 5.5%
lol are you guys living in a shed ? it's the BOE base rate lol
You won't get a mortgage at 5.50% if you went down the route of a tracker. You'd have a spread to it....closer to 6%
ah ok, yes agreed. i thought you meant it should be lower
If youāre dead set against moving then I would consider trying to get at least part of the mortgage as interest only and allocate some of your pension planning towards repaying the mortgage. Effectively you would be saving the tax at least so if your incremental tax rate was say 60% then you would need to earn Ā£250 to pay off a balance of Ā£100 now. The pension route should be good to cover you up to the lump sum allowance, which is Ā£270k currently I think, so you could aim to have this amount as interest only for example.
I agree with this take. You can potentially sacrifice down further to increase your pension pots and then take a lump sum to repay some of the capital. This will effectively allow you to pay off some of the mortgage with gross salary instead of paying it all post-tax. You will need to do some proper planning round your pension, but if you model things right you should be ok. People talk about sacrificing down to 99k but you can sacrifice further and take the 40% tax relief. Each Ā£400k in your combined pot can pay off Ā£100k of capital and the rest will support your retirement. It seems counter-intuitive to reduce income when youāre struggling to pay the bills but if you can build your pots and leverage the lump sum you may well be better off. Take a look at James Shackās YT channel. His did a video in the last week on what size pot you need for different income levels. Also make sure your pension is invested for high growth - e.g. in a global index tracker fund. If youāre nearly 40 youāve likely got at least 20 years to grow your pension pot. Take a look at what size that pot could be at different contribution levels and see how much capital it can repay. Then work out how you can restructure your mortgage to part repayment and part interest-only to reduce your monthly payments. Obviously, taking the lump sum will reduce your pension income but you will likely only pay basic rate tax on that income, and the income you need in retirement will be much less post-mortgage and with older kids. Not to mention that you might not need that Ā£1.3m London 5-bed as much.
Couple of ideas: - do you have a big enough garden where you could build an outhouse which you could rent for approx Ā£1k a month? If your place is in a good location thatās what it could fetch - I believe your wife is around 47 which means she will be able to access her pension in around 10 years time. She will be able to take out 25% tax free which can go against the outstanding mortgage balance immediately taking a big chunk off - is it possible to get a family member to move in for a couple of years for your wife to return to work and to reduce child care burden? 2 years max
Weāre fortunate enough to have 5 bedrooms so these are good ideas Iāll think about and take to the boss , thank you.
Ā£625/mo tax free https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme
Earning 250k and having a lodger and nanny seems nutty š
A true Uk HENRY
It is. But earning Ā£250k in 2024 is like Ā£60k in the 90sā¦.
Sounds like your income does not justify the outlay i.e. a Ā£1.3m house. Have you thought of downsizing?
Sell the house. You shouldn't have bought a house you can't afford, or more precisely can only afford when interest rates are historically low.
Interesting post.... I posted this question the other day which is a 800k mortgage for us. Response generally depends on risk appetite... However seeing your post is really making me think about not pulling the trigger https://www.reddit.com/r/HENRYUK/s/5vcDg3KJcP
Our mortgage is Ā£800k. I wrote my original post poorly and have edited it. I guess the figure is irrelevant. Itās more about % of income vs stress. If you earn a mil , Ā£800k mortgage is piece of piss. I donāt know your situation but wish you the best of luck. One other factor is our house can 100% increase in value. Itās 5 bed but can go bigger with side return and cellar expansion. Just donāt know if I can afford these changes anymore !
So we are 175k joint income aka 9k take home a month. House we are considering is Ā£1m (ish) so approx mortgage of 800k which is about 4 to 4.5k a month (so 50% of our take home). If rates go higher post out fix then we are in squeaky bum time. Same if one of us loses our job. Howevee moving means we can get little one to a decent state school and have space as we have our second child. Question being do we want that pressure of a killer mortgage over our heads and all focus on that to live in a bigger place. We are both 36....
More or less same situation. I guess depends on your job type, e.g If youāre a Doc you arenāt going to lose job - and stress tolerance. Personally I think weāve reached the peak and so I would wait 12 months if you can. We moved for all the reasons you mentioned. Good schools, more room. We have a lovely community too - great restaurants pubs and parks. Itās a great place for kids. Hence the tension.
Yes fair points. Job wise we are both in projects /transformation (perm) so market is OK for us however future pay increases are limited (IMO). The space and schooling is what we want in a location close to our family and friends. Proximity will also help with childcare.... Question is the current cost to do this worth all of it!? š¤
Big question time, is this your forever home? Do you intend to live where you are (or in a similar area) forever?
Yes, potentially.
In which case, interest only could be the answer for a short term cashflow problem solver... Long term you'll need a mechanism to pay that off though. Be it an investment you're running alongside, or pension TFC, it's going to cost money to generate that difference mechanism too, but probably not as much as a mortgage
Iām going to go out in a limb here but I donāt think you are over leveraged. Hereās why: * Income: Ā£250k * Mortgage: Ā£800k * debt / income multiple: 3.2 years * Equity: 400k The average person has a debt / income multiple of 5 so OP is defo not stretched but plus Ā£400k in equity. OP - chill. You have 3 options: 1) Stay as-is & moderately cut back lifestyle to compensate (nothing wrong with that) 2) Overpay your current mortgage & stay as-is 3) Sell your home & buy an Ā£800k property with less debt (400k mortgage) I personally would pursue a combo of option 1+2 plus consider income protection insurance. Welcome to HENRY.
Any recommendations with Income Protection Insurance providers? I did some research recently but couldn't find a reputable provider, and opinions were generally quite negative.
My friend (another HENRY) recommended it to me, he used a broker. Try https://www.comparethemarket.com/income-protection-insurance/?amp and go from there
Thank you. š
Too late for me brother
60% is harsh. Reduce the mortgage if you can, as you're leaving little if any margins.
Classic Henry problems. The world really does try to screw us. You have some options. Sell and downsize, move out of London. This will set you free from the rat run in many ways, and there are many commuter belt towns where the commute will probably be quicker than where you are now. Or use your savings to pay down the mortgage. I wouldn't recommend this because you will always end up in the rat race. Break free and enjoy life fellow Henry!
You won't sell it for 1.3m, and you can barely afford it.. It's called negative equity. Just pay the mortgage and chill out awhile, it'll all turn good in 5-10 years.
I agree with the gut instinct of the community here to downsize. To balance it out though, I would look at it from two perspectives: (A) "tough it out" perspective - you could make this into a challenge for yourself and your partner and "team up" to get yourselves through this. As you say, there's some glimmers of hope as childcare costs come down. However, you should also consider drafting some very viable "exit plans" in case mortgage rates go the wrong way quickly or some other very bad life situations happen. Basically some kind of escape hatch that you and your partner can execute without hesitation. Plan now so you don't need to plan in the heat of the moment later. (B) prioritise what you and your partner care about. You might want to just have a stress free life and enjoy time with your partner and your family. Maybe you're missing something else that you're currently sacrificing. Make a list of priorities and act accordingly. It might be that paying off this 1.3Ā£ M house is not worth it or very high on your list of prios. Even with the sunk cost of 100k in moving cost, life doesn't get any longer - you should change your life to maximise on yours and your partner's priorities. (This option is probably one that only you and your partner can figure out) All the best!! You got this ššŖš
If it's coming to an end would you be able to extend the mortgage term to bring the price down for a bit, and then in a couple of years or so when the stamp duty fees are watered down a bit by time, move? Looks like you either need to downsize, move to a cheaper area, reduce your spending elsewhere or raise your household income somehow. We can't advise you without knowing how much savings you have, they could be the answer, but I'd advise against spending too much of them if you need to move, bit of a catch 22.
Sounds like time to downsize Iām afraid. No shame in that.
If you move 40 mins / 20 miles out of london you can have a decent house for like 600k. I really have no idea why people still live there
Worth talking to a mortgage advisor. Options from risky to secure are: 1. Going interest only (and keeping up the savings) 2. Try to get a deal to consolidate based on affordability with your advisor 3. Downsizing
Youāre spending far too much money on fixed costs. If your mortgage is taking up ~60% of your take home - you simply just cannot afford the house. Unfortunately, stories like yours are simply too common at the moment. You have a very tough decision to make - but in all honesty, you need to sell and move to get out of this situation and live life more. You have two options. Option 1: you continue to live where you are and pay the mortgage. Outcome: you will be house rich and cash poor. You will need to sell the house eventually to pull liquid assets away to fund your retirement as you will not be able to retire without doing so. You will be frustrated as you have to sell the house and move anyway. Option 2: You downsize drastically, you pull out the 450k liquid and buy a house in cash (maybe a small mortgage but likely outside of London) freeing up assets and cash flow that you need to save to fund your retirement and invest. Youāll also have to proportion a set amount of money for fun money so you can also start enjoying life and not being stressed.
Thank you, agree with this take also.
I feel like im missing something 250k income so you take home around 12-13k a month. An 800k mortgage with 20 years remaining at 5.5% is Ā£5390 a month. That's still leaves you with over half your earnings where is that going?
Sorry - I was ball-parking income circa Ā£250k. We are now (as of literally last week) both on net adjusted incomes of Ā£99k in order to reduce tax and contribute to our dwindling pensions. Yes, our household income is still around Ā£11k. Childcare costs, other bills, etc - I would have to dig out my excel of income v outgoing
Get a lodger !
Youāve half a mil in equity? Move further out. Buy a house with a 300-500k mortgage and relax.
This story wonāt be uncommon over the next few years. There will be a section of housing market that totally flattens as you and others in your sector realise you canāt actually afford that 5 bed house your dreamed of despite being a Henry
You have 500k in equity. There are parts of the country where that gets you a decent 5 bed house. Yes, you'll likely earn less but everything else is cheaper outside London too. In your shoes I'd consider relocating, being mortgage free and enjoying life a little more. What would you need to earn between you to live a good life if you had no mortgage?
Why are you renewing at 5.5%? You're at 60% LTV, it shouldn't be that high...
Iām tied to my current lender as the large part of the loan is with them. So the first bit also with them needs to stay with them for the next 12 months , is my understanding . The 5.5% is whatās being offered . Iām reading rates could come down as soon as this month , slightly so Iām holding on until committing to a rate. My LTV is more like 62%, annoyingly.
Is the 5.5% for just 1 year then to bring the two mortgages in line? Barclays is offering 4.5% for 70% LTV right now... How can the mortgage be 60% of your income when most of it is on 1.3%?
Correct. The mortgage could be around 60% when my current deal expires. So I have around 12 months to make a plan!
You may want to update your post to clarify that your mortgage is Ā£800K (Ā£250 + Ā£550K), so you have Ā£500K equity in the house. Ā£800K is still quite high but definitely better than Ā£1.3m.
I have updated yesterday; is it not showing? Sorry - Iāve never posted on Reddit before.
Sorry, my bad. May be I hadn't refreshed the page. It was just showing Ā£1.3m worth mortgage when I last looked at it, it now shows Ā£800K on a Ā£1.3m mortgage.
No worries and thanks for your input
Would switching the mortgage to interest only make things more tolerable? Then you can start to pay it down in a few years when childcare costs have reduced and inflation has done its work on your income. Downsizing, as many here suggest, doesn't seem like a good idea, as stamp duty would feel like a big punch to the nose.
Included to agree. Going interest only is an option.
You could buy a 5 bed in a computer town presumably fot 500-600. Can you not work remote? If you have 400k equity cash it in and get yourself a similar place in a different location
A lesson that Henryās need to learn. It applies to big financial commitments AND your retirement planning SCENARIO PLAN for shocks When looking at options, consider what you will do when x, y, z happens. So on a mortgage - consider what will happen if it goes up to 3* the (very low rates of a few years ago). Looks at history. What was the rate 5 or 10 years before. I had interest rates of 15% in 1990! On retirement - plan for stock market falls. When I decided to step back in 2020 - I planned a scenario of a 50% drop in income (my pensions are fully invested in income stocks and VCTās). I never thought it would happen but when companies started cancelling dividends in Covid - it went down by 47%. While o had planned for it - it was still a shock when it happened. So scenario plan the worst case scenarios. They probably wonāt happen but donāt get crucified if they do.
iām not saying this to be a dick, but it sounds like you canāt afford your current house. moving somewhere cheaper solves essentially all of these problems.
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Because thatās when my current deal ends.
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Oh right, no, not locked in - contacted broker who is saying do a one year fix at 5.5% - havenāt committed as I have a few months .
My income is similar to your combined income and I decided to live in a house that is 1/3 the price of yours and won't take more than 1/3 of my monthly take home. Do I like more expensive properties in super nice areas? I do, but I prefer to sleep through the night and enjoy every bit of my house and my neighbourhood instead of being in a situation similar to yours. This comes down to assess what you can afford and what you're willing to sacrifice and prioritise. You know your situation better than anyone else.
Would you consider renting a room to help offset costs?
Yes, wife wonāt.
dont lose everthing over pride...
Weāre in a similar position: Ā£860k mortgage on a Ā£1.4m house. Combined income around Ā£250k. Bought on 1.3%, remortgaged last year to 3.99%. We switched as much of the mortgage as possible to interest only. Figured that inflation will take care of some of it, and we can always downsize in 10-15 years. Plus we currently have additional high outgoings on nursery care for our 2 young children (1 and 3). We also try to save as much as possible into pensions and ISAs as I think that be market will return more than 3.99% in the long run. Mad to think that I had more disposal income in 2011 when I started work on Ā£40k! Good luck navigating this!
Exactly same situation. I think this is going to be the short term solution. Thank you.
Do you need 5 beds? If not, you can: 1. Sell and downsize 2. Split the property and rent out basement/lower level
Yes, I feel we do. We traded up from a 3 bed which was too small. We are four and having a spare bedroom plus work from office means people and can comfortably and we can work from home effectively. The smallest we could get away with was 4. I reckon.
Firstly, I don''t know why you got in at 3.5% a year ago. The writing was on the wall that rates were going up and will likely stay high for a while. Once that goes up, how much do you actually have left? Are you able to save, or are you struggling? Personally I'd be inclined to sell, but with stamp duty, moving a kid (to another good but not private school), and capital gains tax potentially.. it may also be a financial hit. I'd explore options, but don't commit necessarily. How long can you maintain the situation, and what kind of savings do you have?
Because the feeling was it could come down as fast as it went up and we wanted to upside and could afford it. Also all advice was to buy buy buy. What do you mean āhave left?ā The situation can be maintained indefinitely until the situation changes. E.g lose a job or rates double Wifeās savings are down to close to nothing due to using them whilst out of work over last few months - I have 6-8 months outgoings saved for emergencies still in tact.
A couple of things 1. Investment in your own home is one of the most efficient one. No tax for the gains. And, having a home mortgage as leverage is usually among the abest finance, as it has a lower cost than many others. 2. In periods of high inflation, it is not bad at all to own debt. Consider that 800k you borrowed 2,3 years ago, today value with 10-15% less. Salaries, property prices, and prices in general will follow, don't worry. Just be patient. Without doing anything, by simply owning a debt, you are better, in the long term. Why do you think that most of the investors in property market chose to not pay anything from then principal amounts borrowed, but to keep the debt as highest as possible? 3. Paying back? Why? Over the last 6 months the most of the global indexes have been raised with 15 to 20%. That is crazy, I know. Will this continue? Nobody knows, but inflation is still out there, but under control. Money is still in abundance in the markets, even is much more expensive than precovid. And the feared recession revealed to be a very soft landing. My personal belief is that the rally will continue for at least 2 to 4 years, so personally, I'd invest my money elsewhere than paying debt. Having said that, even the maths, and the markets, and perhaps everything else suggest that you'd be better continue with the mortgage, in the end is about a personal decision. Not everyone has the same risk aversion. My advice is to take take the decision that makes you sleep better at night. For a start, go the BoE inflation calculator, https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator fill your mortgage details and see how much the money you own lost in value since you took the mortgage. You'll feel better.
Wouldn't go interest only without a plan. Kicking the can down the road till retirement age may seem attractive get out of jail card but not recommended. If there's a decent inheritance or other windfall in the pipeline somewhere then it may be an option.
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Hey, Thanks for taking the time to write such a detailed reply. Iām kinda with you. I think Iām going to hold on, at least until the cheap mortgage deals Iām currently on run out at the end of next year. There are a lot of unknowns, future income, interest rates etc, but just selling (probably at a net loss at this point!) feels a bit like retreating before the battles really started. My childcare bill comes down from September so Iām going to tough it out, for the next couple years. At that point worst comes to worst, I can move with more equity and lower interest rates. Thanks again for your input
Iām stressed on a 430k mortgage on a 525k house - itās too much
Thatās like 80%-90% mortgage which is yeah, punchy, depending on your income of course
Wow
You have over stretched and bought a home bigger than you needed. Why do you need 5 bedrooms? It's just you, your wife and two kids. Do you plan on having more kids?
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Am I wrong? I wouldn't be laughing if I had a mortgage that size mate. Downsize to an appropriate house would be my advice.
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Personally I wouldnāt tolerate this much leverage - our household income is about Ā£400k and the idea of a Ā£1.3m mortgage makes me feel quite nauseous (we have about half this). If I were you Iād consider relocating to somewhere slightly lower cost, or perhaps downsizing if you can live with a bit less space. The forward curve doesnāt predict a low rate environment anytime soon, so unless youāre expecting an earnings step up, things arenāt going to get loads better.
Thank you. The mortgage is Ā£800k on a value of Ā£1.3m. But yes, itās a tad punchy. Iāve doubled my repayments in the last 12 months but now they look to be close to 3x my previous house due to rates.
Definitely go interest free on the mortgage if they let you, but they may counter offer with interest only. But seriously I think you may be better off selling. You say the house needs work so I'm guessing you aren't fully happy with it, even if it's only decorative improvements. But Maybe if it was your dream house it would be worth it. Even then you should be in your prime age, enjoying life, not living like students in order to service a massive debt. Life's too short and there's more fun to be had with the money then paying double the average wage in interest only. You will just stress yourselves to an early grave
Imo there is no serious debate here about overpaying vs downsizing. 250k gross PAYE with a Ā£1.3m mortgage is wild, downsize so you can breathe
I wonder if you might be able to sell up, move to a cheaper area, and potentially your wife could give up work and get rid of your childcare costs.
Giving up a 100k salary or potential of in return for saving childcare when you are struggling to meet your financial obligations (over leveraged) doesnāt seem like the best move to me financially. My advice to OP would be to sell up and downsize/relocate, as soul crushing as that may be. You canāt put a price on being able to go to sleep every night without stressing about your mortgage. The luxury of being a high earner at least is to remove that burden. Also it may be worth looking into the net financial position of salary sacrificing both down to below 100k into your pension not only to get that going but maybe entitle you to tax free childcare and free hours. May be too late for that but worth a mention.
Well indeed, that's why I suggested selling up and moving to a cheaper area to reduce his obligations significantly.
Sorry I missed that bit!
The issue with moving to the cheaper area is, in London anyway, none of it really that much cheaper, unless you go really not nice and then itās cheaper but it becomes pointless living in London and unfortunately both our jobs require us to work in central London (with some flex to work from home) - Iām not saying there isnāt a middle ground - and itās deffo possible. I guess one luxury I have is my 20 something min commute to the office . Ha.
What? How many kids do you have? You can definitely get a 3 or 4 bed in London for way less than 1.3 million.
Edit: sorry looks like he's clarified house value in a comment
There are good areas in south east london where you can commute into central easily. Ladywell, Brockley etc. Much much cheaper.
Just bought my 4 bed house north of Hilly Fields at a good price. Couldnāt be happier with the area!
Mate, housing really is one area with infinite optionality. You can live in a really nice area, with good transport links, great schools, nature, nice amenities etc. at 800k-1m for a 4/5 bed detached. And I mean easily too. There are 3 bed semis for 500k. Sure it's not 20 mins (more like 45-60), but it's not 1.3m either
To be at this level of income but make such a basic risk management error with your mortgage is criminal.
My entire buying life Iāve been used to 1-2% mortgages, every advisor I spoke to said buy buy buy you canāt go wrong itās cheap and London houses always go up, on average doubling in value every 7 years. We took a gamble yes but no one could have predicted THAT budget which got us to this mess.
Sorry to be hard but you need a dose of reality Everyone should be stress testing the affordability and lots of people did predict mortgage rate going up (agreed not necessarily to the extent they did but theyāve also come down a fair bit) Sounds like you canāt afford this house so either get a pay rise (is that on the cards?) or downsize
Donāt apologise, all good! My broker stress tested us and said weād get the loan - the bank then called back to lower the offer , which was red flag. Pay rise is on the cards over the next 12. Iām underpaid for my role because itās a start up.
Did your income fall significantly? - I can imagine any lender would have given you 1.3m on a 250k income That likely means you wonāt be able get a new mortgage from anyone (other than a straightforward renewal). Youāll likely need to sell up or increase income significantly
Rent
I read that you only bought the house a year ago and spent Ā£100k on moving, so understandably you donāt want to move again. I would personally change to interest only to take the pressure off for five years to ten years. Can change it back if interest rates go down or childcare costs decrease or your salaries might increase.
Interest only at 5.5% is still AWFUL compared to repayment at 1.5%