Mortgage repayments Vs income .... ADVICE!!!

[Shinypinkbow]

We are a young northern couple in our early 20's, looking to buy our first house. We currently have a combined income of 46.5k.

However, we can't agree what size mortgage is sensible for our first home. My DP is thinking more of a smaller home with a small mortgage (under £500 pm) which we can then move out of in a few years.

I however think we should look at buying a bigger home, with a higher mortgage (£700pm) that we could potentially stay in forever... And avoid paying stamp duty and movers fees in the future.

We have a 10% deposit for a 200k house at the moment + 10k for other fees and furniture. We own our cars outright and have no other debts (just student loan, which is less than my phone bill).

So... What advice can you wise MN'ers offer us?

What are your mortgage repayment costs Vs household income?

An add on....
I worry that we wouldn't be able to afford to upgrade if we bought a smaller house because deposit and stamp duty and other fees will be so much... Plus, if house prices fall we could end up stuck in a place we don't want to be. Helpppp

Well, if you have a 10% deposit on a £200,000 property, then you can only buy a property up to £200,000. So do you mean that if you spent £200,000 at the top of your budget that would = £700pcm payment? Or you could buy a less expensive property and have a smaller mortgage payment?

Or are you talking about saving up for longer to get a deposit together to buy a bigger property?

200k would be top of our budget (approved for a mortgage of 205k) so we could either spend 700-800 p/m on a property at the top end of our budget , or spend less on a cheaper property.

This is the discussion we are having at the moment and trying to figure out which of the two options are best, for the reasons I've said in my first post.

There’s a good possibility of interest rates increasing so be sure you consider that. Think if your career projection will mean better salary.
Also think it’s very unlikely you will buy your forever home from the get go at your age. I assume you don’t have kids so you don’t know how much space you need or when you’ll need it. Will one if you give up work then ? Go part time? Maybe not planning kids at all but job moves etc? Consider all this not just how things are today.

I get why you're torn but I'd be more inclined to go with the smaller home with a larger deposit, you'll get a better rate and a shorter mortgage. I'm assuming it's your first home so you'll get some experience on the true cost of running a home which inevitably is more than you think, there is always some unexpected bill that pops up.
Also could you cope with interest rates rising 2 or 3 percent? On £200k that would make a large difference.
House prices dropping actually is a benefit to you if you are looking at a larger home as the price difference will be smaller, I'd be more upset at house prices increasing.

All that of course depends upon things like potential career progression, children etc. It's possible things like that along with stamp duty and moving costs may affect your ability to move in the future but better that than find you can no longer afford where you live if you chose the larger home.

At your ages I'd move home and hoard money. The bigger the deposit the lower the mortgage.

Taking on a bigger loan is throwing money away as the majority of the repayment is interest. You may as well set fire to it.

So at your ages. And if it's doable I'd be doing what was the norm back in the day which is living very frugally at home and putting the majority of our money into a massive deposit. At your age the short term sacrifice really is worth it.

Are you planning children? I know it sounds silly but if you buy at top of your budget then would you be able to manage etc
I personally think mid budget is a compramise eg a house of 175 k if can afford up to 205. As it means affordable repayments and a better starting house.
Your running costs in a larger house can be more too and are worth calculating.

I would buy the bigger home that you are less likely to move from. However lots of other factors- affording payments ( don't forget life insurance and other insurance payments plus renovation costs that come with any purchased property).

Thanks for the replies. I'm a teacher, so my salary will continue to increase (hopefully!), and DP can expect to earn more money in the future also. Staying at home isn't an option for us unfortunately, but I'm please with what we have managed to save so far!

I'm hoping that if we ever decided to start a family, by that point we would be bringing in a significant amount more money each month than we are now, and it wouldn't be for many, many years but that is why I'm leaning more towards a 'forever' home - I don't want to end up trapped in a property or area that I wouldn't raise a family in.

I'm not concerned about falling prices at the moment, although they are currently rising where we live, which is making us consider moving sooner rather than later. It's more that if we buy cheaper and then houses fall, we could be stuck in negative equity in a less desirable area.

It's less about cost due to size and more about cost due to area. The house size would be the same, most likely large Victorian terraced property or small semi-detached, but if we buy on the upper side of our budget it would be to stay in a nicer area that we could love in forever.

I think part of it comes from me being raised in a different area than my DP, and I can't see myself moving to a less desirable part of the city and I'm willing to pay more to do that!

OK, so it’s location over house size? That changes things, for me at least. I was ready to say you’re still young and a lot can change so a more modest property you can pay off quicker will give you plenty of options. But you know they say location, location, location for a reason? When we bought our first property we tried to look at larger places in cheaper areas but the trade was not worth it to us.

Interest rates are going nowhere over 2% in a good while

I personally would buy bigger if you can afford to. The mortgage will be more but you could then stay forever if you wanted to. I wish we had but we couldn't afford to, so when we eventually move we will have a ton of fees to pay

Also, when buying, look at potential to extend in ten years time ....

I'm 23 and was torn between the 2 options myself.

I decided to go for a cheaper house with a bigger deposit in the end rather than a minimum deposit on a more expensive house because I have my sons nursery fees to pay for which are more than my mortgage!

My house was 127k and my mortgage is 375 :)

I would go for the better location personally if you are in secure jobs with a potential increase and kids a long way off. If it means you can stay there long term then no chance of being trapped and unable to move if the market falters and by the time kid come along you could have paid down the mortgage a bit. Assuming of course the figures are affordable for you.

In your position I would go for the smaller home but make sure it is freehold. This way you can get used to owning property, make sure you definitely still want to be with each other (!) and if you get a first time buyer house it should hopefully be easy to sell on again. I would absolutely make as big overpayments as you can while interest rates are so low. So say if your mortgage is under 400 pcm then pay 800, it will bring your mortgage term down significantly then you will know if you can afford that much per month in the future. So you are banking equity for the future.

I would also go for a 5 year fix so you know exactly what your payments will be each month. Also why you are young and no kids you could even take advantage of extra cash tax free by getting a lodger in your spare room and banking this money into savings. Again, with the experience of hindsight if I was lucky enough to be in this position at your age I wish I had done something like that.

You are in a very strong position for your age so well done on that!