To ask about your experiences with mortgage size?

[Saurus72]

Me and DH (no kids) have lived in a small house since we got married, paying £600 a month mortgage. We are now desperate to move to a larger property, which we are planning to do next Summer. We are likely to have around £60k to put down on our next place. The issue is deciding whether to go for a 'forever' kind of house, which would not be huge, likely to be a 3 bed period house for c.£300k, or a step down from that, a smaller 2 bed house costing c.£240k, which we would be likely to be fine in for a good few years, but would probably want to move on from after, say 5-6 years.

The considerations are that the larger house would mean a significantly larger mortgage as we would only have a 20% deposit, plus we would probably go for a 20 year mortgage (we are 40) which doesn't feel great psychologically, as we only have 18 years left on our current mortgage.

The upsides of moving somewhere we are likely to stay for at least 10-15 years us that any home improvements we do we will be able to invest in and enjoy the benefits.

If we go for a smaller place, our mortgage interest rate will be lower due to having a 25% deposit! plus we'd be likely to be able to reduce our mortgage term to 15 years, which feels good. But then there us the niggle that we will have to pay moving costs again a few years later. Psychologically, not having as big a mortgage, and having it over 5 fewer years would feel really good.

For both options, our mortgage payments will more than double from what they are now, which us affordable, but will mean we will have less disposable income. The thing about yes us that we're great at paying bills - have never missed any bill payments for anything ever - but we are also really good at spending any money that's left over iykwim. I don't want to become a slave to our mortgage, but neither do I want to squander money when it could be used towards greater financial security in a house.

Any views/ experiences gratefully received. This has been rumbling around in my head for a long time, DH tired of talking about it but is as undecided as me.

Wow - lots more replies, thanks.

Re: job security. Well, the last thing I want to do is tempt fate, but I think (hope!) they are both relatively secure. I am the primary earner and yes, I think the advice to see what happens with the promotion first is good.

I get the point about sitting it out for longer where we are, however by the time we move, hopefully next Summer/Autumn, we will have been living in a 1 bed flat for 8 years. There is something to say that as we have done it for this long, we could continue for another couple, but I already feel as if we have been holding on through the recession, avoiding moving during the periods if uncertainty re: jobs/mortgages/house prices.

Fixed payments - yes, the mortgages I am looking at are all 5 year fixes, which does give us a degree of certainty. It will also allow us to build up a very healthy savings pot in case of redundancy or other life issues. That to me is preferable than overpaying the mortgage, as it allows us to access the money if times get hard.

Re: extensions. I've been thinking about this option. I think what I am most interested in is the ability to build a conservatory off the back of the kitchen, to expand living space, and also the potential to build an area in the garden for DH to store his motorbike, if we don't manage to find a property with a garage (and presuming he can access the garden without going through the house).

Ultimately, I think my hope is to find something in the lower budget range, with the option to extend/improve when finances allow. Ultimately, I think we will have a feeling of being spoiled for space anyway, just because we have been living somewhere so small for so long!

On a side note, but related to this in terms of mortgage payments in relation to income. For me, I like to know that there is a financial cushion to cover unexpected costs, and allow us to save for holidays and other large purchases. I am comfortable knowing we have around £800 left over (after DH and I have our 'spending money') each month. I'm interested to know what other people think is a reasonable 'buffer'?

In my opinion it would depend on if you can also afford an insurance policy - such as Total Mortgage Protection Policy - on top of the mortgage increase. I say this as the proverbial could hit the fan and you could be left with nothing.
We bought our house (as a starter home, a small 3 bed terrace) back in 2003. We planned to move after baby number 1. But then the proverbial hit, we both ended up out of work for various reasons. If it wasn't for our low mortgage, and our TMPP we would have lost our house by now.

So I would look in to protecting any property with TMPP, if you can afford that plus the mortgage payments easily, then go for your dream house. If not, I would go for the cheaper option.

To answer your reasonable buffer question, I would be happier if we had 6 months worth of all bills put to one side - mortgage, bills and food. That allows 6 months for you to find a new job, or sort things out.
As it stands I have enough for 3 weeks of food... so not as much of buffer as I would have liked.

If you can comfortably sustain the £300K mortgage without making too many drastic sacrifices then I would look to getting a forever house as if the housing market continues to explode like it is, it's whether the 3 bedroom house might just move outside of your reach in 5-6 years.

In essence there is only a £60K difference between the two types of houses and you would have to spend at least £20K to do some of the improvements you've mentioned. There is the question as to whether you would recoup the outlay in a future sale. Sometimes 2 bedroom houses have a fixed ceiling price regardless of other home improvements done.

I'd go for the 2 bed house option as I think it would seem like a big move up from a 1 bedroom flat and is the sensible option. We recently moved to a new build. We were originally going to move to the biggest house they did but then I got cold feet, pulled out and went off the next size down. This saved money each month and 4 years on the mortgage. We have however spent quite a lot of money on 'blinging' it up and brought lots of beautiful furniture, lights, blinds etc that we wouldn't have been able to afford in the more expensive house and certainly not all straight away.

Little princess - in my current situation, what with my 3 month notice period work would need to give me if they were to make me redundant, plus a redundancy payment, combined with getting rid of non-essential bills, e.g., gym, I would in effect have 6 months to find a new job before 'no money' were to happen. Still, I also think along the same lines as you - it would be reassuring to already have that amount out aside, and that us definitely what I aspire to.

There are ways for us to potentially spend less on a 'forever house', including moving to a less expensive area. DH and I are going to check out some different neighbourhoods over the next couple of months so we know what we are willing to sacrifice, and what we definitely want. DH is more focused on space in the house and a garage, whereas I am more interested in living in a lovely area and am willing to sacrifice some space in the house to allow us to do this. We'll see!

"I've been thinking about this option. I think what I am most interested in is the ability to build a conservatory off the back"

Conservatories aren't always as useful as you might imagine. They are relatively cheap to build and provide an extra space, but if they are south facing then they are often too hot in the summer and whichever way it faces it will be cold and expensive to heat during the winter. I would much rather have a 'proper' extension that has properly insulated walls and roof than a conservatory with a polycarbonate /glass roof which loses heat when it's cold and attracts heat when it's hot.

Saurus - you are assuming there about being made redundant. However, what if you were sacked (happened to DH for something that wasn't his fault - but the owner of the company believed the manager - who was lying!)? Or became too ill to work? Or the company fold and don't pay you what you expect?
Whilst it is great that you would have 3 months redundancy package, I think it would be a good idea to keep a 6 month back up plan on top of that so you would be ok were you not to receive that package. If you can put that away, plus afford the mortgage and TMPP (something which I see as an essential insurance policy - not all will) on the dream house - then I would go for that. If not, playing it cautious might be better.
That is just what I would need to feel "safer" were we to buy again. As it stands we are still in a bit of a poop hitting the fan situation. However thanks to buying at the right time we are just about managing to cover the mortgage and bills. Were we not, I am happy that we have a TMPP in place to help lower the risk of us loosing this house.

Little princess - I used to have a mortgage protection policy in place in case of redundancy, illness etc. When I looked over the finer details of the policy I discovered that it wouldn't pay out for the first 90days and then only paid for 9months after that. Some policies are better than others and pay out after 30 days but these things need a lot of scrutiny to ensure that the policy is worth paying for.
It's also imperative that the policy holder checks all of the details fully as some have exclusions in regard to dismissal rather than redundancy and many insurance companies argue that you might have had some foresight about redundancies due to the volatile nature of your career type.
It isn't as easy as ' I'm paying £150 per month and therefore have peace of mind'.
It is a good idea to have some mortgage protection in place but please read everything vigorously and don't make the same mistake as me.

If you are in London / SE then I would go for the bigger house now as property prices are going up sharply in some areas. However, don't go for a bigger house in an area you don't like just because its a bigger house. Its worth thinking about stamp duty if you are looking at the difference between one and two moves as it's a few grand you don't want to spend if you don't have to.

A note of caution of buying at 240k and extending. Stamp duty. You will struggle to up the price over 250k

To give the other view it seems everyone we know that went for the smaller house at your stage regrets it. We know numerous families now stuck in teeny victorian two up two downs with kids getting bigger and taking up more space but are embedded in the area with kids/friends etc so don't want to move far. We pushed ourselves for the forever house in this nice area when I was pregnant with DD2 (5 years ago) and our friends all sigh and wish they had as now they could afford larger places but they are not available to buy where we are and when they come up go fast and are about £50k more than they were when we bought ours during the 2008 crash. But DH is of the push himself/confident mindset and was determined we weren't going to move again and incur tax and moving costs until we retired. We wanted the forever family house not moving with a view to moving again in 5 years.

Little Princess - I work for a good organisation which means I am covered financially should I be too ill to work for a while, or have to retire due to ill health. The likelihood of this employer going bust is very very slight. Our aim is to save as much as we can to build up a financial cushion.

Chazs - yes, we are about 20 miles north of London currently. We will be moving further away from London.

The problem with the smaller house is that moving is really really expensive. By the time you have allowed for estate agent fees, stamp duty, solicitors etc you are basically chucking £10k on the fire.

If I was you I would spend the next few months saving as if you are paying the higher mortgage (or more if possible) to get yourself a nice big buffer, wait for your promotion then buy the dream house. Try and live frugally for a year or two to up your savings and overpay on the mortgage.