To pay off mortgage on a flat or to buy a house?

[englishbreakfast]

We bought a 2 bed flat in South East London 5 years ago. We are making monthly over payments and larger on-off ones as and when we can afford to, and, all things being well, hope to pay off the mortgage in about 7 years' time. Our flat is quite a good size, but has no outside space and a tiny kitchen. At the moment, we could afford a larger mortgage to buy a similar size 2 bed house in the same area or a 3 bed house in a less desirable area in the borough. Either option would add around £80k - £90k to the mortgage and would mean we cannot overpay, therefore extending the mortgage term by 10 -12 years.

We are a one income household as my DH is a SAHP (we have one DC). If I was made redundant, DH would never earn enough to support us, and while I hope that I'll be able to get another job fairly quickly, there are no guarantees. We love there area we live in; DC has been accepted to a good local primary school, and my commute to work in central London is very good so we are not keen to move to a different area.

We've been thinking for a while now about whether we should focus on paying off the mortgage on the flat and then enjoy the freedom of mortgage free life, travel and save for retirement and DD's future, or to buy a house. I worry that we'll be depriving DC somehow if we stay in the flat, and I feel we are running out of time as house prices in our area (as is the case everywhere else in London) keep going up so fast that we might be completely priced out soon. DH is not that bothered about having a house and would rather have financial security and spare cash for days out, holidays etc. and less worry about the future finances, but I keep wondering if we are missing a trick...

Sorry for such a long post, and thank you for reading. Any thoughts would be appreciated.

Depending on your age I would move to a house in the same area just because I prefer houses to flats and see paying rent/mortgage as a fact of life. Try to have a buffer of savings in case of changes to your work circumstances. Try to make sure your DD would still be able to attend the same school.

For me a flat with a garden, decent sized kitchen and preferably it's own front door would be fine. Otherwise I would move providing we could do this without too much financial pain.
Relevant questions are:
Is there any chance you will have more DC? How would this affect your decision?
Will DP be a stay at home parent forever, or just the next few years?

We're in quite a similar position, with a 2 bed flat in London which we're overpaying and not likely to grow out of (1 dc). We have not been in this flat for as long so we're not thinking about moving just yet, but we do expect to move to a house at some stage. It probably is better to move sooner rather than later as it's true you'd get priced out the longer you leave it. I don't think that apartment living is bad for children though - I lived in flats growing up and our dc will be in a flat for most of their childhood.

What are your service charges like? Ours are reasonable (the block is well managed so it's value for money) but one advantage of a house over a flat is that you don't have those costs (although of course you then have the extra building maintenance costs which might add up to just as much, but at least you have a bit of a choice whether to do them).

I would not move to a less desirable area though - from a financial and personal point of view it's better in London to live in a smaller property in a nicer area. If you are just planning to have the one dc there's no need to upsize unnecessarily - you will just end up with more clutter! Would the 2 bed house be extendable if you needed more space? Also your DH will probably return to work when your dc gets older and that will increase your household income so the thought of taking on more mortgage won't be so daunting.

If you're expecting to stay in the property until your dc is 10/11 then I would base it around the secondary catchments as you wouldn't want to have to move again to be in a decent one.

Thank you for your responses. It's a converted flat and we own a share of freehold, so we have no service charges as we just pay for repairs and any building works as and when needed, splitting the costs with two other flats, which has been working out well so far. We do have some savings, which would last us 10-12 months if I was made redundant, but if we were to buy a house, some of the savings would have go towards that. We aren't likely to have another DC so won't need to upsize as such, and DH will remain a SAHP at least until DC starts secondary school. I agree with you lowerhartrate about not moving to a less desirable area, I don't think that would make having a house worth it for me, but thank you for the tip about looking in a catchment area for a good secondary school. I need to have a chat with DH again, as although he's comfortable in the flat, I cannot get the idea of a house (or at least a garden flat with own door) out of my head.

I've never lived in London but I have owned a flat before and lovely though it was i could never see it as a permanent home. Even though it was surrounded by vast communal gardens I always craved a small private outside space of my own and yes, my own front door. I think if you can find a flat that has these but at a lower price than a house then that would be fine long term. Being financially comfortable is really important but if you can manage both that would be great, doesn't have to be a house though.