Buying a more expensive house

[40andlovelife]

Is buying a more expensive house a good way to invest your money generally? We have seen a house which is worth around 200k more than our current home. We love the house and can afford the mortgage. We waste a lot of our disposable income and the thinking is that HAVING a big mortgage to pay will mean that we cannot squander and be thoughtless which is what we currently are.

Following with interest as this is something I'm considering. The thing that's quite off-putting for me is the inheritance tax aspect of it when I die. My other option is to get another house on BTL and when paid off, transfer to one of my children during lifetime.

Won't there be other taxes ( capital gains ) if you do that ?

Houses have long been a good investment but it's kept going with inheritance and it would be better for the country if house prices stabilised over the next 20 years

I think so , we have just done it and it makes sense to me for many reasons .
Also if something happens and you need care they can take your money but they can't take your house ..

Have in the last year paid £100k in care for my Mum 🤦‍♀️

Yes the inheritance tax side of it is a joke and totally penalises hard working people! I'm considering either selling or putting current home up for rent. Need to see the valuation first though as I've heard that we need to leave 25% of value in it to let it out, but we want to take quite a lot of the equity out of it to put down on the new house

Sorry to hear this. The system is so flawed

Building greater wealth over the longer term is, in essence for most people, targeting 4 strategies:

1.Paying off all debts.
2.Increasing your savings pot.
3.Buying a house and paying off the mortgage.
4.Investing over the longer term, including pensions, stocks and shares and perhaps buying more properties or building a business.

Securing your wealth is achieved through increasing your income, maintaining adequate insurance cover (including life insurance) and inheritance tax planning.

I think the issue with you taking on a bigger house and mortgage is you haven’t yet established good financial habits and planning in building regular savings and investments, and paying off your current mortgage. This leaves you open to a lot of financial risk.

Building a secure foundation first before tying up all of your capital and taking on more mortgage debt would be a more financially prudent strategy.

We already have fab pensions and no debt apart from the car. Not worth paying this off as husbands business pays for it.

Not really interested in stocks/ shares can't be bothered with all that as we work hard and also like to enjoy life while we can.

We have a very good and profitable and extremely long term business too. Current mortgage is very low.

I think our financial state is excellent for 2 people who came from poverty.

We do still waste money though hence why asking if putting it into a larger property is a good idea.

I was recommended to do this but in my view I was happy with a smaller house / less to clean, less council tax/utilities/insurance. We spent lots of money on holidays etc and had a fab 30 years and house was paid off in my late 40/‘s. Thank goodness because I have cancer (not for first time) except this time it’s not curable. Have lymphodema in legs so can’t walk far and have blood clots so can’t fly. My income has halved and DPs has stopped well apart from the £80 odd a week carers allowance. As such, happy we did everything the way we did.

Unfortunately, if a person needs to go into a care home then the local authority very much expect property to be sold to pay for fees. (This is the case if you live alone).

Wow - That sounds like you are very financially secure! Great update.

It sounds like you’re well able to cope with additional mortgage without excessive risk and you like the house you’re thinking of buying - all good. I don’t think you need my advice about house buying!!

You have however asked if it’s a good investment financially, so let me run some quick figures…(making some broad assumptions for comparison):

Additional £200K mortgage over 25 years at 5% interest.
Total repayment approx £350K. Monthly payments £1,169.

Staying put and saving £1169 monthly for 25 years at 5% interest = £703K

Investing £1,169 monthly in an index fund such as S&P 500 (average returns annually over 25 years about 9%) returns £1.33 million over 25 years on past performance.

Additional returns on the new house purchase - unknown, but past 25 years has been about 3 or 4 times its initial value depending on location… so the extra £200K value might be worth about £600K to £800K.

Of course past performance no guarantee of future returns, but what else can you use to make a comparison?
Extend the mortgage over 30 years and the gap in likely returns would be even greater.

Thank you so much for this! It's given me food for thought for sure very interesting. I'm sick of being frivolous with money I need to be MADE not to!!

@doubtfulguest not if the other half that owns it still lives in it!
Obvs if a single person then yes .

We will be putting it all in trust for our child anyway . And buying an annuity if needed . I've seen way too much go on care when some people ( most ) get it for free . It's just not fair !

We went for an extra move and a really nice house as well as paying a lot into pensions. Our thinking was any disposable income we have we spend on days out and holidays then at least we can’t get hold of the house or pension money.

The thing with a house is that even when it's an investment, it's primarily a home (unless it's a BTL). So if the new, bigger house is likely to increase your comfort and happiness, then it may be worthwhile. If the housing market were to stagnate or fall, would you still be happy because you're living in your dream home, or would you be worried about the impact on your net worth?

In my case I chose to invest rather than upsize. On paper, as @seekingasimplelife explains, that was a sensible decision, based on how things turned out, but I'm a natural saver, so was never tempted to spend additional income, and the best decision isn't the same for everyone. The key (and slightly counter-intuitive) point for me is that the right decision isn't just about whether it's justified by the outcome. If you think you are unlikely to be able to achieve financial discipline, then the bigger house might make sense.

Also, I'm not someone who would enjoy living in a massive house that required lots of cleaning, maintenance and the worry of higher bills, but if I had a successful business with great prospects I might feel differently.

This is exactly why I upsized - I am not a good saver. At least the extra £1200 per month I spend on my mortgage actually goes towards an asset. If I didn't do this, I might have a nicer car or more holidays, but I certainly wouldn't have anything that appreciates in value.

So, I see it as a low risk investment because it will always be worth more than a smaller house, but will not increase in value as much as if I'd used the cash in a higher risk investment.

To get the high risk gains, my pension sits in a Sharia fund.

I figure this way, I get the best of both worlds and am somewhat hedging my bets!