London FTBs with a DC - to stretch for a mortgage or review my expectations?

[Somethingsgotthagive]

Properties we could have easily afforded a while ago are not at the very top end of our budget and would imply we need to compromise to very high monthly payments and cut on other lifestyle expenses (such as traveling and day outs, which for us are important).
I begin to wonder whether being an adult also means I should stop fantasising about the perfect property and instead settle for something more modest and keep our mortgage payments low in this time of high rates and instability. Would it be a mistake in the long run?
We are a family of 3 (1 DC pre school) in the London suburbs, we don’t want to move too far away from current are for a multitude of reasons.

Monthly repayments at top end of our budget would be around £2750ish whereas if we settled for something less “nice” or smaller, it would be more around £2200 (still a lot but feels low in the current rates climate).

We are FTBs in our 40s so not exactly expecting to climb the housing ladder much if ever.

@JaneAustensCat thank you. What is considered to be a "good" sinking fund?
The only garden flats in my area are lower ground properties which we aren't too keen on due to lack of light and generally feel unsafe :(

I think how much a reserve fund should be depends a lot on the type of property it is and the potential costs of long term 'one off' maintenance required. So the example of the lift, not all blocks of flats have those (expensive, especially as they age). The roof square footage is large and getting scaffolding up is more expensive due to unusual shape of the block. Internal communal areas are large with a big lobby area so cost more to redecorate. Windows are old, hard to maintain and single glazing so will need replacing at some point too (would be the priority if not for the bloody roof!).

We've gone for 15% of the total annual running costs as annual sinking fund contributions but we have had to dip into it for smaller issues and/or we've had to levy flats an extra amount for specific works over the years. What we should have done is increased it slowly several years ago and made the roof replacement element a separate line in the budget that couldn't get spent on other things.

But we can at least spread the costs over a lot of flats so it's double edged sword. On the other hand a friend is in a converted terrace house so only 2 flats, one of which is her garden flat. Harder to build up a significant fund for her and one other freeholder. Also gets a bit personal if they disagree on anything, whereas we have a freeholders committee and major decisions go to a vote.

I know what you mean about lower ground - I wouldn't consider those either. Around me there is quite a lot of them and they keep getting flooded in heavy rain when the drainage system can't cope, which we're getting much more often these days thanks to climate change.