Small house mortgage free or bigger house with mortgage?

[Housemo]

Now in the position to buy a smaller house mortgage free or a bigger house with mortgage. Here's the pros and cons of both. Which would you choose?

1. Smaller house mortgage free:

Pros: No mortgage. Can potentially save a lot. Enough space to live in and feel cosy Cons: Massive declutter will be needed and probably renting storage space/garage for excess 'stuff' and furniture etc. No room for guests staying. Bathroom downstairs likely.

1. Bigger House with mortgage:

Pros: More space to live in/breathe! Won't need additional storage/garage as above. Cons: Mortgage fees each month. Less money to save.

Other things to mention. Both in same good desirable area. We will probably be moving again in 1-2 years for work reasons. We may consider renting out above property when selling in the future. Tempted to go for 1 because of no mortgage but space will be much smaller than currently rented house. Which would you choose?

I’d go mortgage free for a couple of years, not just so you can save like mad, but also it gives you a bit more security if/when the recession hits.

Unless you are in super-secure jobs.
Be massively ruthless with the stuff going to storage. We did it for 6 months when we had building work done. When we emptied the unit we probably chucked about half of it straight into the skip.

If you’re moving again in a year I’d probably rent as prices might take a dip or houses harder to sell as the recession bites.

Where would you put your £1000 a month though? Unless you live in a stagnant area you will make much more money investing in a better house, and enjoying the benefits. Savings rates are zero at the moment.

An interest only mortgage element of £50k probably wouldn't cost anymore than the storage costs, with the rates being so low

Dont buy a house with a downstairs bathroom. Very difficult to sell.

What about getting the bigger house and paying off the mortgage over two or three years instead.

On your numbers I'd go for the smaller house. An upstairs bathroom is great but not £50k worth. Spend some of your savings on lovely slippers and robes for everyone.

We downsized to a smaller house, we got rid of a lot of stuff but fortunately most houses round here have a garage. Guests can stay in the local Premier Inn or "camp" in the office, depending on whether its my parents or one of DH crew kipping over.

Maybe if you try the smaller house you will know for certain in your next move whether it was enough space or not. Small can be beautiful: cleaning is much reduced for a start.

I would go for the house with the bathroom upstairs if you are planning to resell so soon. Downstairs bathrooms are often a no-no.

Small house and ditch the extra furniture. You don't really need it and paying for storage is bonkers.

If it’s only £50k more if go for the bigger house, a mortgage on that will be tiny. Especially if you got an interest only mortgage with a fixed rate for say 2 years it would be less than £100 a month. If you factor in the arrangement fees it would still probably be cheaper than storage plus it would most likely go up in value more and be easier to sell.

Get a mortgage over a longer term, but one that you can 'port' to a different property if you buy elsewhere when you move, or else one that will effectively be paid by your tenants if you rent it out.

Mortgage free house in a heartbeat. The freedom of that! It future proofs you. What if something horrible happened in terms of health or income? You'd always, always have your home. Always.

(I lived with the fear of losing my home ages 11-16 and it has never left me)

50k is a very small mortgage and I would be fine with that

What if something horrible happened in terms of health or income? You'd always, always have your home.

Is this the case though? If you lost your imcome due to health issues, you'd want to apply fpr benefits but I don't think they aer available to outright home owners?

@CatAndHisKit yes you can claim UK welfare benefits of all kinds of you own your home. In the UK any capital you have is taken into account ( Capital includes cash, savings, shares, redundancy payments, and property) but not the value of the home you live in. The exception is if you need to go into a cafe home of any kind and need help to pay the costs when the value is taken into account but the local authority set a charge against if for when it is sold to recoup the money ( like owing to the mortgage lender)

CARE home, not cafe!

I’d go with smaller house . Worries me you say could potentially save a lot. Of course you can save a lot if your mortgage fee st least 500 per month surely? That’s not to be sniffed at.

We have just sold our mortgage free house to buy a bigger one with a mortgage. Not a huge mortgage but still.

What this year has taught me is that you don't know what is round the corner and living in a house which doesn't meet your needs is miserable.

But on the other hand, we are buying a home for the next 15yrs + and I am not sure if I would buy now for such a short timescale.

We went from mortgage free to bigger house with mortgage. I’m loving the space and the garden. If it all goes tits up, then we’ll sell and downsize.

Powerslide and Gemma are spot on. The smaller house sounds like a false economy. You’re not really saving at all in the grand scheme of things and long term. You talking about 2 years. Unless you plan to continue to be mortgage free after the two years (buy a similarly priced forever home) then you are not making things any easier for yourself long term.

How much would you need to pay in storage? Which house has better potential to increase in value in the future?

As you will be moving again in 2 years, why dont you rent until then.
You will avoid all the legal,stamp duty, agents fees which will cover the rent.
Also if the market takes a hit next year due to economy in relation to cv-19 and Brexit, as is forecast you will benefit.

@NotMaryWhitehouse

Do not underestimate the cost of storage! If you're storing things for two years, you'll want an indoor unit, and if you're storing furniture, you'll be looking at £150+ a month, which might wipe out any mortgage savings.

This and it’s dead money, like paying rent. At least of the money’s going on a mortgage you’ll get it back.

A mortgage of around £50k wouldn’t be £900 per month (assuming you’ve a good LTV). Our mortgage of 200k is around £850 per month. Also, if you’re planning on moving in the next few years then don’t take out a 5year fixed rate. These can be very expensive to get out of unless you plan to port the mortgage. No idea about costs of changing mortgage to BTL.

Small house seems to be a no brainier in areas of money. Could you not add storage in the way of decent outdoor shed/s or a loft you could use?

I currently pay £26 per week on a storage unit , secure , dry, clean and airy suitable size to put furniture for a 3 bed house , I'm SE and that's the average cost , be ruthless before you put into Storage as you will decide you don't want most of it in a couple of years anyway . That totals just over £100 , but it soon adds up .