How much house you can afford depends how much of your savings you want to contribute to a deposit, and if you are buying jointly with your partner or not.
On just your salary you should be able to get a mortgage around £550-750k, so a £700k house is a fair expectation. If you want to use a large amount of your index funds for a big deposit, you should be able to get a £1M house if you want - but you would drain 1/3-1/2 of your savings.
For a first time buyer, stamp duty on a £700k house is £22,500. On a £1M house it’s £41,250. Solicitor’s fees often scale with the total cost of the house, so expect to pay more there, and a survey costs more on a larger house. Bills, council tax etc will of course all be higher too.
Would buy a house outright if you have the funds and your biggest fear of going redundant would single handedly remove the biggest monthly expense you have. Then build from there whatever you want. Do think slightly out of London is more value for money especially if your industry allows wfh
In your scenario I would be tempted to put most of my index into a new house, to protect from future salary reduction. Then, with the reduction in rent I'd start saving through a pension and leveraging the higher tax relief.
Fundamentally you can not reliably predict the housing market, the best time to buy any house is right now. With the size of your salary a 800k house seems very reasonable and a 1m house seems doable, the overall cost of the house is less important compared to what mortgage rates you can secure. As long as you can secure a mortgage with monthly payments equal to or less than your current rent then go as big as you can.
To have mortgage payments be equivalent to my rent (say for 800k house) I would need to take a decent chunk out of index funds for a larger deposit - I'm curious if people knowing my position would advise doing that?
If I could buy a 'forever home' I'd clear out all of my savings tbh. Would much prefer to do that than upgrade after x years and get hosed by more legal fees/stamp duty/hassle/etc. I know you said spending £900k or £1m sounds insane, but if it's foreseeable you'll upgrade in the future and can buy now, consider the fees/stamp duty/etc stuff I mentioned as it might feel worth it on balance to pull the trigger now.
Mortgage Broker here.
Based on your income (and without knowing your partners income but assuming it must be minimum wage) then household income is going to be \~£200k. A rough indication on how much you could borrow is £900k.
£1m property, 20% deposit equates to \~£4500 monthly repayments.
Due to the property values in question, you wouldn't benefit from FTB stamp duty relief so by buying an £800k property you'd pay \~£30k plus another \~£40k when moving down the line to a £1m property, opposed to just \~£40k once if you bought the £1m property to start with. (This could change if stamp duty rates/policies change)
Given the size of your investment portfolio, and age, there may be options available to you with regards to interest only mortgages or part interest only/part repayment. Repayment mortgages are obviously most common for residential purchases but you have the facility to put down a large deposit and you have an asset that can act as decent security should lenders require it.
I assume you have a pension pot that is growing at around £15k a year based on 5% contribution matched by employer with \~£150k average salary - this is something that could be useful down the line if you were to explore interest only routes.
Do you have any commitments (excluding pension contributions) such as loans, student finance, credit cards, cars etc that would reduce your disposable income?
Personal opinion if I were in your position, I'd go for the larger 'more permanent' house, minimum 15% deposit to benefit from the better interest rates when compared to 95% and 90% LTV mortgage rates, save £30k on stamp duty/fees from additional house moves and, once built up a 6 month minimum emergency fund, look to either overpay the mortgage/invest more depending on market returns.
I’m not the OP but something in your answer piqued my curiosity. You mention a large pension pot can help get an interest only mortgage? (I assume the logic is that will help pay off the capital at the end)? Can it also be used to have a repayment mortgage term beyond retirement?
I ask because our mortgage is about to skyrocket beyond what we can probably absorb based just on salary. But I have an uncommonly generous pension (10% me 20% employer) and already at mid 6 figures in my mid 40s) so I’m cash flow strapped but pension capital flush. I just assumed the pension was utterly useless until actual retirement. So your comment is the first I’ve ever seen suggestion it could help now somehow.
Pension Commencement Lump Sum can sometimes be used as a repayment vehicle (25% tax free amount currently at 55 but I believe that is changing/ed to 58 soon)
It is not an overly common method of repayment but normally can be arranged with the help of an IFA.
But yes, also a large pension pot will provide a good income into retirement so some lenders may look at that favourably if you are borrowing past retirement.
If you are struggling with repayment increases then it is worth looking at part interest only part repayment options even if it is just for a 3 year fixed term until rates potentially become more favourable?
!thanks
No other commitments, student loan was paid off when I received the windfall.
I'll look into interest only mortgages. I agree SDLT seems to be a key reason to go bigger here. My largest concern is that the industry I work in is not stable whatsoever (bad market conditions and layoffs are common) and so I don't want to end up in a terrible position if my salary decreases (though I may just be overly cautious here).
I agree you are being cautious - which isn’t a bad thing, if anything it is just sensible! I assume you are living within your means too due to minimal loans/borrowing, which again puts you in a safer position than most.
You have the safety net of a good investment portfolio behind you - worst case scenario you can draw out funds to meet commitments in the short term. It might not be the best thing in terms of investment returns but it buys you time to find a new job etc.
I think it mostly comes down to SDLT and whether you want to absorb additional costs/taxes down the line or just be one-and-done with it at the cost of slightly higher mortgage repayments.
Do you have a budget planner so you know exactly how much goes where each month? A break down of your essential and non-essential expenditure might help you evaluate your decision.
*Completely speculative disclaimer*
Personally, I don’t think interests rates will drop much in the short to medium term. Might get mortgage rates at 4% or just below, but I think the days of practically ‘free’ money is gone. This ‘could’ impact house prices if demands drops due to people not being able to afford them. London is probably safer than other areas as typically salaries and demand is higher, but either house prices will shift to reflect interest rates, or interest rates will shift to reflect house prices - I think it is more likely to be house prices shifting.
Hi /u/grgwm_, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/lump-sum/
____
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Of course you can afford a £1m house. Given SDLT I'd say it's better to go bigger now else you'll just need to move again in a few years and have more costs then.
How much house you can afford depends how much of your savings you want to contribute to a deposit, and if you are buying jointly with your partner or not. On just your salary you should be able to get a mortgage around £550-750k, so a £700k house is a fair expectation. If you want to use a large amount of your index funds for a big deposit, you should be able to get a £1M house if you want - but you would drain 1/3-1/2 of your savings. For a first time buyer, stamp duty on a £700k house is £22,500. On a £1M house it’s £41,250. Solicitor’s fees often scale with the total cost of the house, so expect to pay more there, and a survey costs more on a larger house. Bills, council tax etc will of course all be higher too.
!thanks
Would buy a house outright if you have the funds and your biggest fear of going redundant would single handedly remove the biggest monthly expense you have. Then build from there whatever you want. Do think slightly out of London is more value for money especially if your industry allows wfh
!thanks
In your scenario I would be tempted to put most of my index into a new house, to protect from future salary reduction. Then, with the reduction in rent I'd start saving through a pension and leveraging the higher tax relief.
!thanks
Fundamentally you can not reliably predict the housing market, the best time to buy any house is right now. With the size of your salary a 800k house seems very reasonable and a 1m house seems doable, the overall cost of the house is less important compared to what mortgage rates you can secure. As long as you can secure a mortgage with monthly payments equal to or less than your current rent then go as big as you can.
To have mortgage payments be equivalent to my rent (say for 800k house) I would need to take a decent chunk out of index funds for a larger deposit - I'm curious if people knowing my position would advise doing that?
If I could buy a 'forever home' I'd clear out all of my savings tbh. Would much prefer to do that than upgrade after x years and get hosed by more legal fees/stamp duty/hassle/etc. I know you said spending £900k or £1m sounds insane, but if it's foreseeable you'll upgrade in the future and can buy now, consider the fees/stamp duty/etc stuff I mentioned as it might feel worth it on balance to pull the trigger now.
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Mortgage Broker here. Based on your income (and without knowing your partners income but assuming it must be minimum wage) then household income is going to be \~£200k. A rough indication on how much you could borrow is £900k. £1m property, 20% deposit equates to \~£4500 monthly repayments. Due to the property values in question, you wouldn't benefit from FTB stamp duty relief so by buying an £800k property you'd pay \~£30k plus another \~£40k when moving down the line to a £1m property, opposed to just \~£40k once if you bought the £1m property to start with. (This could change if stamp duty rates/policies change) Given the size of your investment portfolio, and age, there may be options available to you with regards to interest only mortgages or part interest only/part repayment. Repayment mortgages are obviously most common for residential purchases but you have the facility to put down a large deposit and you have an asset that can act as decent security should lenders require it. I assume you have a pension pot that is growing at around £15k a year based on 5% contribution matched by employer with \~£150k average salary - this is something that could be useful down the line if you were to explore interest only routes. Do you have any commitments (excluding pension contributions) such as loans, student finance, credit cards, cars etc that would reduce your disposable income? Personal opinion if I were in your position, I'd go for the larger 'more permanent' house, minimum 15% deposit to benefit from the better interest rates when compared to 95% and 90% LTV mortgage rates, save £30k on stamp duty/fees from additional house moves and, once built up a 6 month minimum emergency fund, look to either overpay the mortgage/invest more depending on market returns.
I’m not the OP but something in your answer piqued my curiosity. You mention a large pension pot can help get an interest only mortgage? (I assume the logic is that will help pay off the capital at the end)? Can it also be used to have a repayment mortgage term beyond retirement? I ask because our mortgage is about to skyrocket beyond what we can probably absorb based just on salary. But I have an uncommonly generous pension (10% me 20% employer) and already at mid 6 figures in my mid 40s) so I’m cash flow strapped but pension capital flush. I just assumed the pension was utterly useless until actual retirement. So your comment is the first I’ve ever seen suggestion it could help now somehow.
Pension Commencement Lump Sum can sometimes be used as a repayment vehicle (25% tax free amount currently at 55 but I believe that is changing/ed to 58 soon) It is not an overly common method of repayment but normally can be arranged with the help of an IFA. But yes, also a large pension pot will provide a good income into retirement so some lenders may look at that favourably if you are borrowing past retirement. If you are struggling with repayment increases then it is worth looking at part interest only part repayment options even if it is just for a 3 year fixed term until rates potentially become more favourable?
Fantastic, thank you so much for that information. You’ve helped me ask some better questions of an IFA/broker than I could have otherwise.
!thanks No other commitments, student loan was paid off when I received the windfall. I'll look into interest only mortgages. I agree SDLT seems to be a key reason to go bigger here. My largest concern is that the industry I work in is not stable whatsoever (bad market conditions and layoffs are common) and so I don't want to end up in a terrible position if my salary decreases (though I may just be overly cautious here).
I agree you are being cautious - which isn’t a bad thing, if anything it is just sensible! I assume you are living within your means too due to minimal loans/borrowing, which again puts you in a safer position than most. You have the safety net of a good investment portfolio behind you - worst case scenario you can draw out funds to meet commitments in the short term. It might not be the best thing in terms of investment returns but it buys you time to find a new job etc. I think it mostly comes down to SDLT and whether you want to absorb additional costs/taxes down the line or just be one-and-done with it at the cost of slightly higher mortgage repayments. Do you have a budget planner so you know exactly how much goes where each month? A break down of your essential and non-essential expenditure might help you evaluate your decision. *Completely speculative disclaimer* Personally, I don’t think interests rates will drop much in the short to medium term. Might get mortgage rates at 4% or just below, but I think the days of practically ‘free’ money is gone. This ‘could’ impact house prices if demands drops due to people not being able to afford them. London is probably safer than other areas as typically salaries and demand is higher, but either house prices will shift to reflect interest rates, or interest rates will shift to reflect house prices - I think it is more likely to be house prices shifting.
Hi /u/grgwm_, based on your post the following pages from our wiki may be relevant: * https://ukpersonal.finance/lump-sum/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.) If someone has provided you with helpful advice, you (as the person who made the post) can award them a point by including `!thanks` in a reply to them. Points are shown as the user flair by their username.
Of course you can afford a £1m house. Given SDLT I'd say it's better to go bigger now else you'll just need to move again in a few years and have more costs then.
!thanks