House purchase stretch to the limit or spare cash?

[Bells3032]

We are looking at purchasing a house. We are currently Double income, no kids etc but looking to have kids within the next couple of years.

We are currently discussing whether we should stretch our budgets and mortgage to limits only keeping back a tiny bit in savings (our mortgage coming to about 27% of our take home pay) or buy something smaller and have plenty of money spare and not worry about finances for a while.

My husband is a two year qualified solicitor so earnings are likely to increase exponentially in the next few years and i am a civil servant so can work flexiably to help with child care. We could afford the higher mortgage but we'd have to watch money a little more carefully.

Which would you do?

Thanks

Never stretch to the limit. You have no idea what the future brings.

We bought six months ago and ended up spending half what we had anticipated when we found not quite the house we wanted but in the perfect location. The extra cash each month is very nice indeed, and I think we did the right thing. I’m not sure we would have compromised any more on the house though.

I think if anything is to be learned over the last 3 months, it’s that NOTHING can be taken for granted....time, money, health.

I wouldn’t stretch myself financially for a building. I wouldn’t run myself into the ground work-wise to fund living expenses.

We are in a really awkward position in our area with virtually nothing in our general price range. We either have to go right to the top of our budgets and hope some nice person gives us a discount cos we are chain free or go like 200k below price. There is nothing in between it's really weird.

Look at both levels of property until you find a property that you can afford and yet will be adequate as a home for a family in a location you could live

It’s so bloody expensive to move (medals, stamp duty, removal costs, mortgage fees) is stretch if it were me. If you’re planning on having kids in next couple of years I’d future proof for say next 7-8 years if poss by buying something you can grow into (also think of school catchment areas).

We are currently looking to sell our house and buy a project which will become our dream home but it is going to take every last penny in extensions/renovations possibly. The easy option would be to stay here and add an extra room on here but we want more than an extra room (for our dream forever home) and wouldn’t make our money back if we did any more than that (questionable if we’d even make it back just adding only one room) so we are looking to push ourselves as far as we can financially. We are 41 and 37.

When I bought my first property (London which still own and is rented out) I got a 100% mortgage and had less than zero pounds left after I bought it. But great decision as bought for 160 and now worth 450ish (poss 400 after CV!)

Second house I again had nothing left over and did make a loss on that house overall. Borrowed the max I could borrow at the time but lived there 7 years and loved it and paid off a chunk of mortgage which then gave me money to buy current house with DH.

On our current house we didn’t borrow maximum and didn’t put every penny in, and if we accept the offer put forward today we’ve made 65k on it in 3 years. BUT it’s going to cost us about 30k in fees/stamp duty etc to move.

So in short, I’d push yourself now if you can!!!

We were always advised to stretch ourselves, although that may not be so wise in current times. Having said that, you're a solicitor and civil servant - I can't see either of those roles becoming redundant any time soon.

Also have to remember that interest rates are staggeringly low (15% when we first bought!), so it does seem sensible to make the most of that.

Another thing we were always advised was to get a fixed rate deal - you'll pay a little more for it, but it's worth it for peace of mind.

The area around us is like that - lots in one price bracket and then a big jump to the next bracket. Personally, if I knew the salaries would be increasing, I'd wait to buy another year. Move while pregnant (if that's why you are moving - apologies if I've assumed but you mentioned childcare). I wouldn't stretch now, because everything is so uncertain, but I wouldn't want to sign myself up for a move now and again in two years either!
We bought at the top of our price range (cash purchase) and then did it up by remortgaging. We were very lucky to find one of the only houses in the middle of the two price brackets though.

Buy smaller and pay extra off the mortgage, closer to being mortgage free later.

So in short, I’d push yourself now if you can!!!

Under the current circumstances I really wouldn't do that, but I am naturally cautious. Do you have to stay in the same area? Can't you move elsewhere?

Stretch, and find a way to make it work. There's nothing that affects your quality of life more than your home, nothing. So spend money on your home and spend less on other stuff.
If you are thinking about having babies, prioritise locations where you can walk easily to a decent school and which are close to parks, meet up spots and supermarkets. Don't go for temporary solutions like a two bedroom home because it's very easy to get stuck. Temporary solutions have a habit of becoming permanent.

I would stretch myself on mortgage allowed, but still make sure I had a few savings in the bank as back up. Moving house is expensive so the fewer moves the better to get to a home you want to stay in a long time.

We could have stretched ourselves and gone up a price bracket when we bought this house 15 years ago. I was too risk averse. We’ve ended up with an OK house in a good area. I love the location but not the house. As a PP said, the house affects your quality of life. My house makes me depressed. Now we have kids we spend more time at home, making all its flaws more highlighted. We can’t afford to move now as the next bracket houses have increased beyond what ours has. I so wish I’d been more gung ho.

Also, with lockdown, it’s made me appreciate the things we compromised on we shouldn’t have - no separate study/work area.

I would stretch. You will save a lot of money in the long term.

About 20 years ago we had friends who bought a massive house, no children and both earning. They had a huge mortgage and we thought they were mad. We rented as we didn't want to stretch ourselves.

Fast forward and they have never moved and nearly paid off their mortgage. It's taken us many moves to get the family house, cost us a fortune and we still have a big mortgage.

There's nothing that affects your quality of life more than your home, nothing
This varies between people, it definitely isn't true for us or many people we know. Personally my life is improved a great deal by having zero financial worries.

It partly depends what is better about the more expensive house - we would be willing to spend more for an area with better schools and public spaces but not for extra rooms or a "nicer" house - personally I find the extra happiness with the latter wears off after a while when the house starts to feel normal.

Agree with poster above, given the situation in the last few months, I absolutely wouldn't want to be stretched to the limit with a house purchase. We decided to be prudent with our house purchase, and are not far off paying it off. We also have longer term opportunity to extend both the kitchen and the loft, so will plan to do that in time (dependent on secondary school outcome).

One thing to add is you may not be quite ready to purchase your family home yet. I think it's often difficult to be thinking as far as primary/secondary school options when you don't even have children. I'd potentially look at a property that would be suitable for a young child and has a decent primary. Secondary in many areas gets very complicated (we're in a Grammar area for a start) and you could be in a position where you may have to move again in the longer term.

Also, I thought it was interesting you mentioned that pushing your budget to the limit meant spending 27% of your salary on a mortgage. That proportion isn't actually that high, I think the average is at least 40%+. I think we pay 25% of our joint salary on a property but still have plenty of opportunity to save each month. Could be worth relooking at the rest of your outgoings to see what you can minimise/needs paying off?

You're in a catch 22 position OP. We stuck way below our budget for years, saying that we would make it work, except when DD came along, it just didn't. For 3 years we struggled living in a 3 storey ancient cottage with a rubbish garden and a baby but finally last year said enough was enough.

The irony is, we couldn't afford a bigger house until the 30 hours childcare funding kicked in and i wonder whether we would have managed during maternity leave and later paying over 1k a month in childcare if we'd moved earlier.

I suppose you just make it work, and house prices will always go up in the long run. Those who talk of crashes and dips are usually those who want it to happen, for their own personal reasons, but over time things always settle out and property is always a good investment (well placed that is)

One note of caution however. Please don't ever rely on your partner and don't assume you will be happy to do the bulk of the childcare. I've read TOO many posts from women where this set up has sadly gone very wrong. Always always look after your career and make your DH take 50% responsibility for the children, and if he's not prepared to do this you need to have a serious think about your future.

Women will continue to struggle to build their careers after children unless they stand up and say no more.

Agree with previous poster, I would be looking for areas where there are decent schools. Also, if going for the higher price meant not having to move for a long time I would go for the higher.

Mortgage providers have started to increase their minimum deposit for house purchases. Nationwide, for example, is asking for 15% from first time buyers. That means they expect house prices to fall. Give it six months OP

I wouldn’t stretch myself financially at the moment. We’re about to enter the worst recession anyone will have seen and no one knows what this will bring.

If the last 3 months is anything to go by, it absolutely shows how important it is to have savings available and not to spend every penny that you have. The next few years are not going to be good and I doubt that many jobs are 100% recession proof.

I’d go for the smaller house and bank the savings in the current climate

What's the smaller place like? Is there any middle ground available a few miles down the road?

27 percent isn’t bad, do you have many other outgoings? In your shoes I’d stretch right now it’s the time to do it.

Thanks for all the comments. In short we want the area cos my family live there and my husband' family are only a couple of miles away (in an even more expensive area). The vast majority of my friends are in the area too and it's an easy commute to london for work.

We don't have any other outgoings - no student loans, no HPs or any credit card debt.

We are waiting on my grandfather's inheritance and my father has offered us 60k from that as well which i said i wouldn't spend and was gonna put away in savings so we should still have enough. We are also living in a property owned by my in laws so no mortgage or rent so every month we are saving a huge chunk of our salaries. But it's a tiny flat and quite away from my family and friends so want to be near them by the time i have a baby (no pregnant yet just future thinking)

Schools wise weirdly the cheaper houses are closer to the schools we'd like (which are faith schools) though the more expensive area has a bus to a further away school that isn't so oversubscribed (and my sister also teachers there). Being closer to the school is nicer obv but the further away one means more time between dropping them and picking them up.

Then there's the issue of when to buy. We initially said January then moved it to sept when covid happened due to expecting prices to drop. They haven't dropped at all and i am worried if they do there will be nothing decent on the market.

It's all so confusing.

Just remember mortgage rates are do low now. We are on s lifetime tracker and paying .59 above base rate. There was a time base rate was almost 8 per cent, now it 0.1. It will go up again could you cope with that?