Please help me decide what to do! How much do we want to stretch our house buying budget?

[theborrower]

www.mumsnet.com/Talk/legal_money_matters/1512290-WWYD-Need-to-start-over-again-when-we-move-house-and-looking-to-the-future

Last year I posted about not knowing whether to get a decent 2 bed flat in an area we like, or getting a 3 bed in an area we don't because it was cheaper, because we are hoping to have a 2nd baby down the line.

Since then, we've sold our flat (sold in 3 weeks, woo hoo!) and we now have a 15% deposit for a property up to £170k thanks to a little help from parents, saving really hard for what seems like forever, and lower interest rates from the mortgage lenders. Renting does still not seem to be any cheaper than mortgage payments, so we want to buy again.

We have spotted a 3 bed in our preferred area but it is top of our budget and needs done up. Being 3 beds means that it would last us a really long time, but I'm worried about whether it's sensible to go to the max of our budget - even though we can afford the payments now - given that we'd like to have another baby and will need to factor in nursery fees for them down the line, them being another mouth to feed and still having childcare costs when DD1 starts school (childminder after school etc). And the prospect of bank rates rising a lot in the future worries me too.

My parents keep saying that they were always advised to go max out their budget because it would always pay off in the end, but this was back in the day of mortgages based on one salary and house prices always rising. We've already been bitten because we sold our flat for a lot less than what we paid for it (we bought in 2007), and we're starting a new 25yr mortgage, so I feel really uneasy with this advice, especially about the prospect of rising interest rates at some point.

Should we go for a 2 bed in one of our preferred areas because it will be a lot cheaper (and so allowing us to comfortably afford a second baby and all the costs that will involve) or stick it out for a 3 bed? I'm worried that stretching ourselves for a 3 bed means that we may not be able to comfortably afford that second kid, which is the whole point of getting a bigger place.

But then again, if we get a 2 bed and need to move again in, say 7 or 8 years time, whose to say we won't get more shitty luck and sell our place for a loss again, making that further move difficult again??

How much of a money cushion do you think is sensible?

What is the monetary difference? I always think that the first few years are tightest on a mortgage. If this is your forever home I would probably stretch ( you could go onto interest only for a while if the worst happened financially) because when you are further down the line you will save money from not having to move again AND you can do the necessary work as & when you can afford it.

For me I would go for a 2 bed in your preferred area. I wouldn't want to be a the of my budget and then not have the money to do what you want to do to make it your home or a 2nd child.

With luck you will be able to extend the 2 bedroom house so you won't have to move again.

@RedHelenB - £170k house with monthly payments of approx £720. Or a 2 bed at about £135k, monthly payments of approx £570. We have a household income of £42k before taxes. Nursery is our other big expense at £500 a month.

I'm usually cautious but I still would go for the 3 bed if you think you will be fairly stable finances wise for the next 2/3 years.

I agree with red and would go for the three bed because in the long run if you went for the two bed and then needed to move again in a few years you would have another lot of moving expenses to pay, including that nasty tax otherwise known as stamp duty!

If you can reduce your budget so you have a 20% deposit you will get a much much better interest rate

I'm voting for three bed. Buying a new place is so expensive ...if money is tight I would take the pain now and get used to your new mortgage payments, rather than struggle later on when you decide to trade up. I've got two children and there is just so much stuff to find space for! So I am confident you will eventually want to move.

At the moment it is usually the lenders that will determine your maximum budget as they all have own affordability models and so it would be a good idea to get some independent advice on the maximum you might be able to borrow. The average interest rate over the last 10 years was approximately 6% would you be able to afford your repayments if that is what the interest rate rose to on the 3 bed and if you had another baby what would your salary drop down to? If you want to chat through the scenario my company is model financial solutions limited, I'd be happy to have a chat :)

Well, we bought a 2 bed today for £150k! The 3 bed we were after at £170k had too many notes of interest and we weren't able to stretch. It needed lots of money invested in it to get it up to scratch which we don't really have. We haven't seen any more 3 beds in the areas we're after that are in budget.

We feel comfortable with this decision. We have a wee money cushion, and aren't putting ourselves under financial stress. I think we'll also be able to pay 6% interest rates, as we used to pay this on the place we're in now and the amount of mortgage isn't massively different (we were 95% before). We also feel that having another baby down the line is a possibility as we're not stretched too much.

It's also a decent size, and the owner previous to the current one had two kids in there, so I think we'll be alright for a bit. We'll certainly be happy in the interim. If we need to move later, well, we need to move. We'll cross that bridge when we come to it.

ModelfsHan - my salary wouldn't drop, but my expenses would go up! I work full-time in compressed hours, and my husband also has a flexible working arrangement so we only need 3 days childcare for DD.

Congratulations!
Sounds like you have really crunched the numbers and are progressing with your eyes wide open... Fantastic!
Good luck with purchase, I hope it goes through quickly for you and you can be happy in your new home.

Thank you! I certainly feel more at ease with the lower amount purchase and the fact it doesn't need money thrown at it - it's all in good nick.

Found out yesterday that the max sale price we would have been allowed was actually £165k, not £170k, because of childcare vouchers which they had forgotten to take into account. and the good mortgage deal that we were going to get expired at 8pm yesterday so we made it just in time. All working out quite nicely I think1 We definitely made the right decision.