If you can afford it, is it better, to be mortgage-free with a little left over to spend decorating the house, or move to a better house with the downstairs loo and spare bedroom you'd like but have to take out a bigger mortgage?
I think a lot depends on your circumstances. If you're near retirement age or your income is uncertain it would be better off to go for the cheaper option. If not, the convenience of the extra space and loo would probably win for me.
Your own level of expected mobility plays a role as well - are stairs likely to become a problem any time soon?