You obviously are right in that overall someone earning 200k will (almost always) be better off than someone on 23k even if one has a much higher mortgage than the other, but I can also understand the point your friend is trying to make as I kind of apply a similar (faillible) logic to your friend when it comes to your other friend with the cheaper flat, due to my own observations.
I’ll give you my own example:
I am a fairly high earner (my income varies month to month but overall I do earn a decent amount) and could have likely gotten a fairly consequent mortgage on a high-ish priced property, instead, I made the choice to be mortage free and buy a property that was extremely cheap in a country that’s cheaper than the UK. And yet, even if I had had a mortgage I would have picked a mortgage that wasn’t based on my current income, and would be easily paid off while on minimum wage as a single income earner (I am from a poor background so not overspending is very deep in my DNA at this point I think.)
My logic was similar to the one of your friend. Tomorrow I can get ill (I bought alone) and lose the majority of my income, which would make any high mortgage repayment, impossible to pay before running through savings, and then what? I would lose my savings + eventually the house and go back into renting, losing everything I worked for just because I wanted a mortgage that was 100% dependent on earning well or on bringing in two incomes (for couples who buy together)? That honestly seemed scary to me, and didn’t seem worth it, when I could either have a low mortgage or (in my case) no mortgage.
Also, another of my thought is that past a certain point houses simply don’t bring up enough things for their value. Again could be coming from a poor background but there is nothing a house could bring that would make me not regret to spend a million or even 800k on it. Just none (and I say this as someone who stays very regularly in multi-millions and billionaires houses and do see how pleasant and they are and all the things they have that are undoubtedly nice.) I can see how a billionaire won’t care spending a couple million on a house cash but personally getting a one million mortgage makes me shudder, especially as most 1 million houses or flats in cities like London really aren’t coming with anything special. When you could have a villa with a pool and very nice facilities for less than half the price a bit further out.
For example, I would have had to spend so much more money for the teensiest flat in London Zone 1, and would have had to spend likely a million more to get anything comparable to what I have actually bought (I have a 3 double bedroom home with 2 indoor patios and private parking in very proximity to the beach in a country that’s sunny most of the year).
So my basis of who’s better off isn’t just based on cost vs earning it’s a lot more «what are you actually getting for your money » and also « how deeply in the shit will you be if you get a chronic illness and need a career change/have a break up in relationship and can only rely on your sole income ». Your friend is right in that sense that someone who can repay their mortgage on minimum wage and on their sole salary has technically a much bigger safety net (and also have a much bigger shot at positively increasing her situation as she is more likely to find a better paid job in the future (furthering the gap between earnings vs mortgage) or to find a partner and split bills (again doing the same). If, on top of that your friend has a bigger flat for a lot less money or even a similar sized one for less money or for a better location (central London is obviously appealing to people needing to live there for work but I would say living close to a beach or having a beautiful landscape view and big garden would beat living in a random central London flat with little charm in terms of quality of life). I would say that yes, friend who earns a lot less and have a lower value property is better off, but that’s because I personally put more value on what one get for their money (in terms of quality and prestations vs price) over what one own financially.
But again, it’s more of a biased opinion than a logical one and it’s more because as a higher earner now I am extremely aware of how easy it is to stretch your finances or extend them in a way that are comfortable while you earn such amounts but are 100% reliant on an high income to be sustainable in any way long-term, which to me seems precarious (in a world where AI is becoming more and more efficient and most jobs more and more precarious/replaceable). I therefore find people who can “easily” afford their lifestyle on a low wage in a lot better position than people who earn a lot but are dependent on a bunch of factors lining up to be able to sustain their lifestyle; so I understand your friend’s logic; whether that’s actually logical or not.