To house or not to house?
March 12, 2020 12:29 PM   Subscribe

Mr Fish and I are about to buy a flat. We have the contracts to exchange but have not yet exchanged. Is this a terrible idea at the current moment?

I'm worried about what we would do if I was laid off. We currently live in a rented 2 bed flat that's currently feeling a bit small with our 11 month old, will soon feel VERY small.

Conventional wisdom is to not get a place if you can't cover it with one income but, well, we live in London, we both work full time, and we have a daughter in full time nursery. We couldn't afford our rental if one of us got laid off, BUT we have a pretty substantial cushion (obviously) right now in the form of our house deposit.

Our new mortgage is about £250 more a month, but the place is twice the size of our current flat. It's where we could see ourselves living easily for the next 5-10 years. I've projected that we can save about £500-£600 a month in that flat. I already keep one month's worth of bills and rent in our current account, but have yet to save up one month's worth of childcare fees. I could probably sell some investments from an S&S ISA I have as a booster if I had to.

We have an unavoidable cost coming up later this year that I'd projected we'd be able to save for if no layoffs occur, but with the prospect of a recession looming I'm not sure I want to count on that.

I've been at my current job for 6 months, 3 months permanently. My first performance review was very positive. I've got 3 more months of probation. But I work in the advertising industry, and though I didn't work in the industry in 2008 I understand that it was eviscerated in the crisis.

Mr Fish and I are 39 and 36 respectively. We've never owned a home. We're finally, finally in the closest spitting distance to actually owning a home for our family. We literally just have to send the contract to our conveyancer and it's done. We were SO EXCITED about this house, it was a much-needed bright spot after a truly awful 2019. But now I'm consumed with doubt and anxiety that we're making a horrible mistake, not to mention concern with having to move at what might be the height of an epidemic.

The thought of withdrawing our offer at this stage is awful and heartbreaking. I can't tell if I'm overreacting. Please sense check my concerns, hive mind!
posted by nerdfish to Work & Money (10 answers total) 1 user marked this as a favorite
If you were laid off - would the childcare fees go away, at least temporarily?
posted by soelo at 12:33 PM on March 12, 2020 [2 favorites]

Conventional wisdom is to not get a place if you can't cover it with one income

I don't think that particular "wisdom" is adhered to by many people, especially in big cities. More important is keeping DTI below 30%. Assuming that, this is not a no-risk situation, but, as you have some other savings and it sounds like the place is a good fit for your life otherwise, I'd go ahead.
posted by praemunire at 1:13 PM on March 12, 2020 [1 favorite]

I would go forward. You can't put your whole life on hold for a hypothetical future crisis. Yes, the chance of being unemployed is higher now than it was a couple months ago, but you don't know how likely unemployment is: you haven't just been fired.

Plus you have a year of expenses except for childcare. That's a solid cushion.

In your shoes I would soothe my anxiety by making a crisis budget to figure out how to make it work if one of you lost your job. Take the kid out of school? Cut the upcoming big expense? Get a roommate?
posted by medusa at 1:21 PM on March 12, 2020 [1 favorite]

In case you haven't seen it, some of the banks have already announced that they'll offer mortgage payment holidays to anyone hit by coronavirus, and I'd imagine the rest will follow suit. So that's a thing.

That conventional wisdom sounds very sensible, but I don't think it's realistic in our current housing market. The disparity between salaries and property prices is just too great. Most of the couples I know either have wildly disparate salaries (so, yes, one income can cover the mortgage, but the other one can't) or need both their incomes to cover their costs. And then there are the people who buy alone.

I'm in the latter category, so there's nobody to cover even part of the mortgage if I get made redundant. Which is terrifying. Here are the things I've considered:

- I have equity in the house. I might be able to borrow against it one way or another if need be.
- I have equity in the house. If I had to sell it, it would be a wrench in all sorts of ways, but I could put it on the market at a discount if I really needed to in order to secure a quick sale, and still get enough to repay the mortgage and (hopefully) have a lump sum in hand.
- It's not to the bank's advantage to lose me as a long-term customer over a (hopefully) short-term cashflow problem. I might be able to arrange a mortgage payment holiday if money got tight.
- If I had to settle for a job with significantly lower income for a bit, then at least in principle I could let the house out for enough to cover the mortgage, put my furniture and possessions in storage and rent somewhere smaller and cheaper for a while.

Other thoughts that occur to me:

-If you're taking a fixed-rate mortgage, then unless your tenancy agreement has a clause capping rent increases, your housing costs in the volatile foreseeable future will be more predictable with the mortgage.
- You'll get your deposit back (I'd imagine) when you vacate your current flat. Every little helps.

And some more things to think about:

- How long did it take you to find this property? If you gave it a year and looked again, assuming no change in your purchasing power (I know, I know), would you be spoilt for choice or would you be after a needle in a haystack?
- If you were looking to sign a rental contract tomorrow instead of exchanging on a purchase, how would you be feeling right now?

In your shoes I would go ahead with the purchase, partly because of what my answers to those last two questions would be, but mostly because I am sitting here in a house that is warm and comfortable and decorated to my taste, and none of those things were within my power to achieve in the places I rented. Also, bonus right now, big enough that I won't go stir-crazy if I have to self-isolate for a fortnight.
posted by ManyLeggedCreature at 1:32 PM on March 12, 2020 [1 favorite]

Response by poster: Just to clarify, we have a month of expenses sitting in our current account (YNAB style 'spend last month's money'). I also have some additional funds that I'm setting aside for the upcoming expense and some money in a S&S ISA as a booster for retirement. Most of our day to day costs go onto a credit card (for points) that we pay in full each month, but those are budgeted for, too. Not sure what we'd do with childcare - childcare is hard to find around here and I went on the waiting list for our current nursery when I was pregnant.
posted by nerdfish at 1:38 PM on March 12, 2020

If it makes you feel any better, we closed the day after the September 11th attacks. I'm sure you can imagine how we felt, borrowing a huge amount of money under those circumstances. And it all turned out to be fine.

Where people take a bath on housing is when they are forced to sell or can't make the payments. Are you likely to have to move in the next few years? It seems like you're doing better on your savings than most people, so I, speaking as someone who's pretty fiscally conservative, would go for it. Cold feet is a thing because it's so common and typically not a sign of anything other than a normal, healthy level of anxiety.
posted by wnissen at 2:02 PM on March 12, 2020 [1 favorite]

The global financial situation is extraordinarily chaotic. I wonder if that will driving housing costs down. I have absolutely no expertise in this, so talk to somebody with expertise who has no stake in your transaction.
posted by theora55 at 3:19 PM on March 12, 2020 [2 favorites]

One risk I might ponder is that real estate prices might drop in a recession and you might be able to get more house for your budget in a few months or a year; and if you buy at this price it might take more time for the market to regain the loss and you to make money when you sell (but if you are buying in London, I'm quite confident than in the long run it would be a great investment).

A friend of mine lost his job (whole company went under) two months after buying a house late last year. He had little savings because he had spent them on the down payment. He ended up getting a roommate and a new job, but his other option was to move to a different state to live with his parents while job hunting and to rent the house out to pay his mortgage. If you could rent the new house out for the equivalent of your mortgage payment, you'd have a fair amount of flexibility.
posted by amaire at 3:44 PM on March 12, 2020 [2 favorites]

Are you saying that after the deposit on the home, all you’d have is a 1-month emergency fund and your retirement savings? If so, then I’m really sorry to say that I’d think you should save more before buying even if there were no Covid crisis. Possible exception if it’s easy to tap your retirement savings without penalties and you’re confident in your ability to save back up for retirement in the long run.
posted by daisyace at 7:25 AM on March 13, 2020

Response by poster: Additional clarification: the ISA is booster to our retirement savings and only a very very small fraction of our retirement savings.
posted by nerdfish at 4:56 AM on March 14, 2020

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