I think this is tricky, because the layout is clearly a big disadvantage. And the trade off for that is that you have been able to buy a larger house with better features (high spec modern decor, garden, detached property) for the same money.
So when your DH says the best option is moving to a "cheaper" house, that's not really true - you would be moving to a smaller less "nice" house for the same money (minus what has to be paid on moving costs, solicitor fees, tax, early repayment fee etc).
We are in a slightly similar situation (also in Scotland) in that we have a flat in a not great location (over a commercial unit on a busy road). That meant we could get a lot more flat (bigger space, private garden, in a good catchment area) for our money than if we had vetoed the flat based on location. Right now, that works for us, but the trade off is that when we move, it will be hard/slow to sell and won't achieve the same percentage above HR value than a much smaller flat without the location disadvantages.
In your situation, I would look at both a short term and a long term plan. If you only moved recently, you are likely to lose money by moving now because:
- the housing market is slower now than 2y ago in most parts of Scotland
- any early repayment fees for the mortgage (unless you can port it to a new property with a similar value)
- you haven't built up much equity in the property, so most of the money you have paid has been on interest repayment not paying back the loan.
For the long term, can you do some financial projections to work out how much deposit you are likely to have from the sale of your current house in 3/5 years - at what point does it become viable to trade up to a bigger property?Or alternatively, how much would it cost to extend/alter the layout so that it genuinely works for you and your (possibly growing) family?
Then look at the short term. Your DH wants to keep the layout as it is. But that's not working for you and he hasn't even tried any of the other options. It isn't fair for him to be refusing any flexibility here - there needs to be a compromise.
What is the cheapest/easiest thing you could do to make the house layout more workable in the short term, while waiting to either move or extend?
I'd definitely be considering adding a living space in the kitchen or in one of the 2 larger bedrooms as a first option, so that there is something on the main floor, even if it's a bit small and imperfect. That has minimal cost and might give you an idea about whether there is a way to make the layout workable, or if moving really is the best option.
FWIW, I think your DH is probably right that small structural changes (stud walls etc) will be a big expense/hassle that won't make significant improvement to the layout. Bigger changes (kitchen downstairs) cost more and might just move the layout problem. And an extension that gives you more living space on the main floor will be pretty expensive - but possibly worth saving for if it makes the house work for you in the long term.