Housing advice

[Wiggleyfingers]

We are looking to buy our first house. We have been so fortunate in renting a parents second property for well under the going market rate for the past 5 years which has enabled us to save a deposit of 40k. This is coming to an end in August, we knew this was coming for a while but have been unable to apply for a mortgage so far due to a few unavoidable obstacles. We have a joint income of 80k. We live on the outskirts of Brighton and struggling to find anything that is going to fit us and our 2 children, within a commuting distance to our work and school.
We are looking to buy around the 375k mark. The repayments of which is going to be between 1800 and 1900 per month. This is going to leave us with next to no disposable income, until our youngest goes to school in a couple of years. (High childcare costs!)
Would you...
A) Suck it up and accept it's going to be tough for a couple of years.
B) Rent a house for £1500 a month until the interest rates go down and our outgoings decrease in a couple of years.
C) Look at relocating the family to a cheaper part of the country and try to buy a house for less.
D) Buy a small 2 bedroom house (Around 300-325k) and accept we will need to fork out for costs of moving again in 5 years when we outgrow it.

Please help! I'm going around in circles.

Are your parents selling the property they are renting to you? Would they consider a private sale to you?

Now isn’t the best time to buy, as I think the prices will drop, plus anything you’re buying is going to cost more in interest, so I’d only consider what you need now. Could you buy something that needs work or an extension, so you can make a bit on it and then add that to the next one? Don’t forget that everything else is going up in cost and utilities are due another rise in April, so don’t leave yourselves short.

Owning a house can be costly if anything breaks or goes wrong, so you don’t want to be that tight that you can afford essential repairs, like if the boiler broke. Kids are also expensive and will cost more as they grow. Ultimately, it’s your choice but my family all value holidays and days out/after school clubs and hobbies, more than extra rooms that we don’t use that often.

I’d buy a house you can afford op, not one that stretches you and I’d do it now.

I would relocate. Because I did.

On the other hand, if you're in growing careers where remuneration can grow exponentially, I'd rent until the next step-up in income.

I'd definitely would not buy a 2 bed at the moment. The prices are still high, the interest rates not great - it could turn out to be a very ill-timed investment.

They're not selling, they are offering the same opportunity to my sibling to make it fair. Then they are going to rent it out for income when they retire.

C or D. Interest rates are not going down, they're about to go up and keep going up if you look at world economics. They've been historically low for too long.

If you like where you live then I would go with D. If you’re open to moving then start looking at areas you can afford the type of house you want.

Question though have you actually checked you meet the affordability criteria for the mortgage you need and can successfully apply for one? Plus you can apply and get an agreement in principle at any time so why not do that? It doesn’t obligate you to a mortgage. Don’t want you to find that you can’t actually get the mortgage you need!

re ongoing renting, I’d be worried generally about house prices still continuing to rise albeit slowly. Then you could find your options getting less and less/ smaller and smaller. The house we bought would have been too expensive for us a year later despite another year of saving (for example could save £6000 a year, houses went up by £40k).
If you think interest rates will go down further then just get a 2 year mortgage so you can remortgage as soon as possible. Though of course that’s a gamble… they might also go up again!

It’s a shame for you and your children to leave the house, if you did a private sale could your parents give some of that money to your sibling rather than have them move in? Though not sure where that leaves your parents retirement plans!

A or D- I don’t think rates will go back to last years levels anytime in the near future- prices though should drop.
option A- how much disposable income would you actually have left?

We've calculated we should have around £500 'savings/extra' each month, which doesn't go far when the car goes wrong...birthdays, Christmas, other general living expenses that crop up all the time.

Disclaimer: I'm also aware this sounds very 'first world problem' and I'm grateful we can afford to put a roof over our families head and feed ourselves at all.

How long is that mortgage for?

What school year is dc1 in? I wouldn't stay in the vicinity just for an early primary school age child's school.

Alternatively, rather than a 1500pcm rental on a 2bed house, would a 2bed flat be worth renting for a few years? Just til the childcare bills drop.

I think there’s already been a drop/adjustment in housing market or at least you’d likely to be able to realise one with a ‘cheeky offer’. Our house was recently valued at £40k less than a year ago. Realistically I’d think we’d achieve another £20k below that too. The area we were interested in also had houses being reduced on rightmove.

Interest rates are still low, I know it might not seem it, but before the 2008 crash mortgage rates were ofter around 5%, often much higher. They have been kept artificially low since the 2008 crash by the banks printing billions of £ in what was called quantative easing. This has helped keep the economy bouyant at the expense of savings rates. As mortgage rates were so low for so long, it also was part responsible for the increase in house prices. So don't expect rates to come down.