Can we afford this increase in Mortgage?

[proudpa2]

We're thinking of purchasing a home for 280,000. Our Joint monthly income is £4000. £3000 from my job. £1000 from wife's salary, including child benefits. We are both in our early/mid 30s.

I work full time(WFH). Wife works part time. Looks after our kid. No nursery fees.

We've accepted an offer on our current house, which will leave us with £57,000 in equity after early repayment fees. Also have 30k in cash(roughly 10k for house, 20k for emergency. don't want to go below 15k for emergency), and 23k in Stocks and shares. So about £67,000 for new house deposit and fees.

Wife could potentially bring in an extra £300 a month come August. Don't want to count on that however. As it's not as simple as her just picking up extra shifts, due to our child's additional needs. My job is pretty secure (perm, public sector )

I will get approximately 150 quid a month guaranteed next year(Post tax). As I currently buy additional holidays to keep child benefits. Plus 2% pay rise. At the top of my band. So only inflation rises. They will redo the bands at some point, but can't count on that.

Mortgage payments would be about 1200 with a 20% deposit. 5 year fixed. 30 years

We would be spending about 30% of our monthly income on our mortgage. Our mortgage payments would increase by about £700. Council tax by 100. Had a look at home insurance and it would probably stay the same, as we've not got the best deal ATM. Energy costs should be about 20 - 50 quid more. Instead of saving as much/giving ourselves as much fun money, that's where the money would come from.

We can cover essentials on my wage if my wife had to stop working.

Our future budget would be.

Category
Cost
%

Home (mortage,insurance,council tax, broadband, energy)
1765
43.7

Car(Mostly Petrol, putting 50 quid a month for services etc, car is paid off)
283
7.0

Food(Could defo reduce this)
550
13.6

Physio
270
6.7

Fun money(150 each)
300
7.4

Buffer
210
5.2

Savings(half invested, rest for holiday, xmas presents, clothing etc.)
600
13.6

Life and critical illness insurance
35
0.9

Entertainment(netflix etc)
30
0.7

It feels comfortable to me. Just want to double check before we take on a much larger mortgage. Thanks!

 

[dobichlan18]

@proudpa2 Port your mortgage to avoid early repayment charges.

 

[resjudicata]

@dobichlan18 Would recommend speaking to a good mortgage broker who can help work out the options

 

[proudpa2]

@dobichlan18 We can't unfortunately. As our current provider will only loan us just over £200,000. They don't include my wife's wage.

 

[dobichlan18]

@proudpa2 You should be able to port your current mortgage and then get a different mortgage to cover the outstanding balance.

 

[proudpa2]

@dobichlan18 ahh ok. I didn't realise you could do that thanks. Say we have 80,000 at 3% remaining on our current mortage(6 years fixed remaining). We would keep that with our current provider from our current home. Then 140,000 with a new provider for our new home at ~4.6%?

 

[dobichlan18]

@proudpa2 Yep. Definitely worth talking to a broker.

 

[proudpa2]

@dobichlan18 We have been. Maybe they mentioned it and we misunderstood and thought we would need to stay with our current provider for both mortgages. Thanks

 

[lonawin]

@proudpa2 Almost certainly you won't be able to do this, it would have to be some funky product with a lower seniority claim, and I can't work out how that wouldn't be anything other than unsecured debt in practice unless your LTV was pretty low!

Not aware of any UK lenders who would do this and rate would be astronomical and likely outway any early repayment charges.

Then you would need permission from current lender, so would not suggest pursuing this route

 

[creationrules]

@proudpa2 No it has to be the same provider

 

[vettesfan]

@dobichlan18 I would agree that this is something definitely worth exploring. Many people don’t realise you can have more than one mortgage at once.

 

[zogy101]

@vettesfan they have to be from the same provider though ... can't have two companies fight it out over who will get their money back if they could even force a sale independently

 

[jesussaves623]

@dobichlan18 This is what we done with Santander

 

[luckswallows]

@dobichlan18 what do you mean by port ?

 

[jstanley7]

@luckswallows You keep your mortgage and just change the address it is for. You also ask for more to cover the additional borrowing need as a second mortgage from the same provider.

This can be difficult if the existing lender will not lend enough additional money but with the budget set out here it should be arguable it is fine with the buffer they are putting into savings currently.

It is worth talking to the existing lender to see options.

 

[kathleencalado]

@proudpa2 £1110 (26.2%) of your monthly income makes up the savings/buffer/fun money. I think you have plenty of wiggle room to handle most things. You have a large emergency fund, I presume a decent pension and you have illness/life cover.

The numbers add up, and I tend to think that if you have ran through the entire budget and have room for manoeuvre then the exercise proves you can.

One thing I will suggest to consider is income protection. At your age it will be cheaper than at mine (late 40s) but while the public sector might be good if you are long-term sick, if you are in some way incapacitated and cannot work beyond the support your employer provides, how will you manage?

 

[proudpa2]

@kathleencalado My pension is decent and my wife will get a decent pay-out if i die while I'm employed. Yeah, good point. I've never thought about income protection/thought it would be covered by critical illness. But realise they are probably separate things now. Thanks

 

[kathleencalado]

@proudpa2 Critical illness pays out a lump sum to me if I get cancer or have a heart attack etc. it’s designed to lessen the financial impact of the disruption caused by such an event. Life covers if you die up to a certain age but income protection covers that state where you don’t die, but can’t work.

 

[joshken]

@proudpa2 It looks doable but I'm not sure I'd say comfortable, your budget looks squeezed in some areas, and you have a few categories missing.

You're budgeting £565 for all essential home costs - why not break them down into individual sections and check? Also you haven't included anything for ongoing maintenance or one-off repairs. Sure, you have your emergency fund, but how will you replenish it, as you're also counting savings as a budget pot for Christmas presents and holidays.

Car - what makes up the £283? Does the £50 a month budget for services include MOT, insurance, breakdown cover and vehicle tax? What happens when the car needs replacing?

You're banking the extra £150 income that you're currently sacrificing to keep child benefit - but you've also counted child benefit in your partner's income? Is this because you will keep the benefit due to the HIBC changes?

On the whole I'd say this budget works until you hit unexpected and one-off costs.

 

[proudpa2]

@joshken Yeah, the plan would be any house costs would be covered by our emergency fund. If our emergency fell below £15000 for example, then our savings would top it up. We would stop investing.

Car wise, yeah the 600, will cover mot and yearly service. Yeah, good point. Maybe need a savings pot for a new car.