To overstretch budget and buy a nicer property or get a more modest place and a more affordable mortgage?

[PennyLany]

This would be for a 2 bed flat for a family of 3 in London.
What would you choose?

I think it would depend on what you think might be on the horizon.

We stretched a tiny bit, but will both get pay increases this year, and will have an empty nest in the next 18 months. So we knew our overstretch was manageable short term.

If things were more unpredictable, I wouldn't stretch.

@Floopani our DD is only 3 but we are late 30s/40s. Our salaries will probably increase although not massively. It's the high house prices and interest rates that make me wonder whether we should just settle for something more modest than we can afford but I worry we'd want to upgrade in the future and that will be a high cost

I mean no one can advise really. Are you a risk taker? What if one of you gets sick and can't work? Are you likely to have another child? How about an inheritance? Are you one roof repair away from not affording basics if you stretch? Some people would go for it, others not - only you can decide. I'm more of a risk taker with property - I've always made money.

Modest all the way. You don't know what's coming.

Go for a good location.
It should hold it’s value.

This OP.
I mean, if you're one and done why would you want to upgrade? London is full of free/cheap things to do. You should be out and about enjoying yourselves. If you were a homebody then I wouldn't recommend living in London (appreciate some jobs are rarer outside the capital), but you can always upsize later. A 2 bed flat in London buys a 4 bed semi in other parts of the country.

Get space saving furniture etc, keep clutter to a minimum and enjoy the spare dosh.

I think most places in London should hold their value - and you might be able to get a little more space if you're a little further from the "good area"/trendy location. If you can only afford a flat, it will probably be leasehold rather than freehold - make sure you're clear about what you're buying and what the lease says, and that there aren't nasty surprises, for example a flat in a block of flats/development that is due for repairs might mean a big bill in addition to mortgage repayments, and there may be other hidden costs.

As a former legal secretary working with inhouse property lawyers for a local authority, choose your own solicitor who is acting for you, don't take up an estate agents' offer to refer you to solicitors. This is because the estate agent is acting for the seller, and I think they or solicitors/others working with them already have a client - you want professional advice from someone who doesn't have a conflict of interest if there are issues with the property/lease.

Affordable - assuming a good catchment area.

Overstretch and get a nicer property. I wish I had done it, in retrospect

Go affordable. Only because you can't see the future.

Choosing affordability gives you peace of mind.

I've read loads of posts on Mumsnet with people saying they were glad not to have stretched themselves due to interest rises and others panicking because they stretched and now can't afford the higher mortgage plus the cost of living increases.

My advice as always is to stretch the mortgage to a longer term if possible, stretch on what you can borrow with the option of lower affordable payments.
This is what we have done and have the forever home now when we need it - as the kids are growing up

It depends on your circumstances
I know 2 couples who essentially mortgaged themselves up to the tits on an interest only mortgage and lived in AMAZING homes for 10-15 years.

They viewed the IO mortgage as "cheap rent" lived there until kids went to uni then sold and downsized pocketing the rise in value.
They actually cleared a reasonable but not wow wow wow net profit.

Note: i think you need to know your market for this sort of thing.

I'm a risk taker so i'd go for the nicer property.

It all just depends on what your risk tolerance is really. Having said that, I do risky things and if they go wrong I do whatever I need to in order to right it. if that makes sense.

I can't advise on London as we are at the other end of the country. We are risk averse but choose location everytime. We chose a small house in a good area which was a good choice as we ended up staying there longer due to job losses, the fact that it was affordable meant that we didn't lose the house during those tough times.

Location is key in London so there is the good state school catchment premium. Do you want more children? If you're prioritising primary schools, be aware that there is a Y5/6 exodus outside of London or go join the 10/11+ private entrance exams scrum.

Location would be the same, it’s just the type or property I am referring to

Modest is my vote.

I think longer term you'll appreciate the spare money for holidays/experiences etc with your child rather than a bigger house. So long as you have enough space and don't end up cramped and stressed by the living situation.

Are you having more kids? Are you expecting pay increases? When will child go to school and you loose nursery fees? Etc. Bearing in mind you could be moving in say September /October - what will your financial situation be then?

We stretched and don't regret it even though interest rates have increased

It depends how big a compromise the modest property would be. If it means you end up moving again in the future rather than being happy to stay put in the nicer property then it may not be worth it with stamp duty and other moving costs.

It doesn't make sense to move twice so I would stretch myself to buy the nicer property - these will alway hold their value better anyway.

But it does depend on your appetite for risk as others have said. Only do it if your jobs are safe.

I would probably stretch if you're not planning on more children. Your costs should drop quite a bit once your DD is in school and given your age you don't have that much time before you start hitting pension age with the mortgage. That will make it harder to upgrade later if you settle for something you're not happy with.
But as always we can't predict the future so you have to decide if taking this risk will cause you stress.

I do think there is a difference between stretch and overstretch. No one should ever go for more than they can afford. I went for the stretch property before I had kids and it has been great as it could fit them in too. The one I was looking to buy originally was only 2 bedrooms and in a less good area. Never regretted it.

Go for location rather than a 'nice' place. Assuming it's your first property, I'd also expect to move again at some point.

So location would be the same for both options. Option n1 would be either a small house or a nice period maisonette with nice features, which would mean stretching at the top end of our budget.
Option n2 would be a nice but more modest flat (still in a nice block) that would cost us a bit less both in terms of mortgage payments and deposit/stamp duty.
Not a massive difference but still a difference (i.e. property n1 could cost anything between 540K and 570K whereas property n2 we would be able to get around the 500K mark).

We are FTBs but almost 40 yo. 1 DC, not planning for more.