Neither. Just because if you both don't agree then it's not the right house.
That aside, house 1 is cheaper so you could use money saved to do it up, but that would depend on what time you have to do it.
House 2 is lovely, but small and wouldn't suit a growing family m, so if you did have kids later on you'd be looking at moving and wouldn't really get much equity to get something bigger. Whereas if you outgrew house 1, there is scope to make a bit of equity to move up the ladder later on.
But I still stand by what I said above: it's not the right one of you don't both agree. Keep searching.