smaller mortgage v nicer property

[Greenhats10]

Wasnt sure whether to post this here or AIBU. Was having a glass of wine with a good friend of mine last night who is also trying to buy in London and she told me that she and her husband have almost split up over their property search. My mate thinks they should get a flat and a smaller mortgage because they have small kids and need cash now, her partner thinks they need to buy a house and think of the future. I think price wise it's about 150k-200k difference and I sort of see her point.

I was trying to reassure her that it'll be ok either way but apparently they just can't agree and she was really upset. What would everyone else do? Would you opt for a flat and hope to have more money per month now or stretch yourself to a house but pay more per month.

Well, I think they could do with some counseling over it.

Personally, I'm very cautious so would go with the smaller mortgage (and, indeed, I do live in a flat which was cheaper than what I could theoretically have borrowed). In doing that, I feel I am thinking of the future; I'm arranging my life so that if I was ever earning less, or interest rates went up considerably, I'd still be able to manage.

Depends where you’re at in your life. We are about to have our first DC and want the luxury of a full year’s SPL, one of us down to four days etc. We’ve decided to move to a 2 bed house that’s about 100k less than we ‘could’ borrow so we don’t feel worried - with the way the economy might be headed, being more comfortable financially is our priority. I might have made a different call if we were buying our first place again (although we did a renovation for our first place in our 20s so have a nice amount of equity and I’d do that again in a heartbeat).

We know the 2 bed house isn’t our forever home and my parents think we’re a bit mad to not stretch ourselves to the family home now, but bearing in mind the stamp duty holiday we’re ‘only’ paying £6k to move, and feel we can justify another move to the ‘stretch yourself’ house in 5 years time when I’m done having DC/mat leaves and hopefully our careers (certainly DH’s) will have seen a couple of promotions.

Sorry that’s a bit of an essay! Basically, I can see the temptation to push yourself but being at the same point as your friend, I’d be much more comfortable taking one extra ‘step’ on the ladder than jumping straight up to the dream house but having sleepless nights/having to return to work early etc. I’d have thought the stress of all that had as much chance of splitting a couple as disagreeing about this in the first place.

Having said all that though and reread your OP, I wouldn’t live in a flat again - we’re also in a London flat - we’re the ground floor in ours and have the garden which is lovely but the drama of leasehold extensions, having to cope with upstairs neighbours moving around etc is just too annoying. So personally if I were in their shoes I’d compromise on a smaller house or the area (assuming schools aren’t yet on their agenda?). But that’s just me.

Hmm, I think it depends on so many circumstances really - not just the absolute difference in price but also how that relates to their income and lifestyle - if they are very high earners/high income and can easily afford the higher mortgage then it seems silly to stint on much needed space for the sake of more disposable income to spend on holidays and the like (much less important than a nice place to live IMO). Whereas obviously if it would be a real financial stretch to buy the house and would threaten their long term financial security then that's different.

Lots and lots of people in London do bring up their kids in small flats perfectly happily, you typically have access to good parks and public space in most parts of London so a garden is less essential. I do think that as kids get older though space becomes more important - where they might have been happy sharing rooms etc and doing homework around the kitchen table as littlies, once they have exams and want to have friends over and things like that it can be more challenging to give them personal/quiet space (although still do-able with some creativity). Is this what the DH is thinking of when he says they should think of the future? If so then I would have thought a good compromise could be to buy the smaller place for now, and then save as much as possible towards moving to a bigger house in 5-10 years time? Obviously this means doubling up on legal fees and other costs but most people do have to move house at least a few times to get where they want to be rather than buying the 'forever home' as first time buyers. The other option would be to buy a small-ish house or maisonette now with the potential to do something like an extension or loft conversion further down the line to add value and give more space? Perhaps a do-er-upper if they are reasonably handy and happy to live it in and do work over a longer period?

The other factor not mentioned is location - London is a big place - could they go a zone or 2 further out and get a bigger place for less money? Obviously this is a trade off in terms of extra time commuting but with Covid working from home may be more possible? Don't discount the more suburban parts of outer London, they can be great places for a family...

Tricky one. Looking back, we wish we had stretched ourselves a bit more when buying our first house together as we then wouldn't have had to move after having two children. At the time, we didn't think so long term.

If I was them , I'd stretch now; growing kids can be expensive but more so when they are tweens/ teens, IMO so go for it now if they can manage it!

If the higher mortgage is affordable without being an absolute tight stretch; and particularly if having one means better living space and a garden, then I’d go with a nicer home all day long. Life is too short to be so cautious with your money that your day to day life for years is - at best - a bit lacking or - at worst - makes you actively a bit miserable.

Perhaps I feel this way because I’m also very aware of a few people I know who always prioritised being careful and having lots of savings in the bank who died relatively young and never even got to realise the benefit of the cautious decisions they made.

Best way to be successful with property is to get to your end property in as few steps as possible. As long as they wouldn’t struggle - that’s objective- I’d opt for the nicer bigger house and mortgage- they also have small kids they don’t want to buy and decide they need to move in 5 years time for space

Thank you all!! I think in their case they are basically looking at ground floor flats or houses because of outside space. Their DC is already in a primary school so ideally, they were hoping to stay in the area.

From what she says lockdown has made them re-think their priorities but along different lines, her wanting more financial stability and him needing his own 'castle' - they are both very easy going people under normal circumstances but these arent normal circumstances for anyone. I can sort of see both sides plus I've known them for a long time.

Also, what would they do with the “extra money” that having a flat would allow them? If they’d just keep it as cash savings then with interest rates as they are at the moment it actually makes more financial sense to be borrowing a larger mortgage and putting money into buying what is intended to be a long-term home.

Interest rates are so low atm that I think if you’re going to stretch yourself now is the time.

They are both in public sector jobs, she's a colleague of mine and we are all in our 40s. So probably won't get huge pay rises anytime soon and no idea whether there will be future redundancies or anything like that.

We’d sit down and put a spreadsheet together (or a few).

Are they paying rent now? Presumably even a mortgage on a house would be less per month than rent?

@JoJoSM2 at the moment they are living in a flat on top of her parents' house but thats not a long term solution and I think they feel that they have to get their own place. Her parents are super lovely but from what she says, it's time to move on/out.

Realistically, they know that this might be their home for the long term which probably adds to the stress. It's sad to watch two lovely people being at loggerheads

If they're going to stretch themselves the timing needs to be right. They don't want to overpay for a house. I'd go for house over small flat with children.

I’d go for a house with children especially as there’s no fees at the moment and kids grow quick so they’ll end up moving again in a few years for loads more money.

Maybe compromise on a small fixer upper house? Cheaper than any other house and they’d have a low mortgage.

Or compromise on the area and get a house for less money. The children would need to change schools but better now than in secondary.

Another vote for move to a house now, to avoid the stress and cost of additional moves

This sounds wanky but honestly I've lived it. Smaller mortgage. Life is for living now. You won't get these years back.

My husband and I had this conversation ourselves and were determined to get something bigger and stretch our mortgage given my husbands income is likely to increase in the next few years. But we said we'd look at both ends of the pay range. We ended up falling in love with a house at the bottom end of our price range - the location was better than the more expensive ones and close to a good school. We're taking a 20% smaller mortgage and ending up with about £50k in savings once we've repainted and bought furniture etc. We decided we'd rather have that at this point in our lives and enjoy nice holidays and not have to watch every penny.

But the difference is what we are buying is still plenty big enough for a family of four...just not our dream house. And we can decide in 5-10 years whether we want to pay down our mortgage and enjoy life or to move to dream home.

But we let what we fell in love with decide for us and it worked.

I think that it depends on the likely trajectory of their career progression.
Making lots of moves takes a lot of money time and energy so if the flat would be a short term move, I can understand why the Dh would want to cut that out, make the stretch and go for a longer term solution.
It might be tight for a while but if they are likely to benefit from pay increases because they will pursue promotions in the next few years then they will be in a better position further down the road.
I assume they have already benefited financially in some way from living in a flat over the parent's house. It probably makes sense to reap that benefit and make the stretch to a longer term house.
Why does your friend favour a smaller flat? Is she wanting a finished place rather than a bigger house that would require work etc?? I'm not buying the financial stability rationale... A smaller mortgage means more cash for sure but what is she planing to do with it? Spend it? On what? That's not financial stability and is pretty short sighted.

We went cheap and relatively small - although still have a 4 bed terrace. I wish we'd spent more and gone bigger now we have a son. Bedrooms are ok but I feel like we live in a shoe box. Wish we had another reception room and a garden to put an office in - 2 of the rooms are used as offices at the moment. 😭 I'd go bigger as long as it's not too much of a stretch. Moving is a ball ache.

In their case, they are looking at two-bed houses or flats so in terms of space it's pretty much the same. She's mainly worried about a)job security over the next year or two - with a higher mortgage they wouldnt be able to live on one salary if the other lost their job, b) i think the extra money would go towards things like after school clubs, holidays, maybe overpaying their mortgage or pension - things they have now basically.

When we discussed it I definitely sided with the smaller mortgage cos am pretty cautious but relaying it to my husband he definitely went for the house........

150-200k difference between a 2 bed flat and a 2 bed house? Sounds like a pretty central, expensive area.

I’d just get a 3-bed house with a nice garden further out and still have the lower mortgage.

3 bed house with garden and space so they don't have to move again. This probably means moving to a cheaper area but keeping costs down by looking for a mortgage that relies only on one salary. Buying a flat entails leasehold costs which is something they must be aware of.

I think flats are harder to sell in difficult markets. I’d always get a house.