big mortgage or smaller place

[Luna1980]

Currently trying to decide on our next strategy regarding our house purchase - got inspired by another earlier thread. Have to caveat this that we're both European and have no experience of buying property or anyone to ask really so would love to canvass MN to see if anyone has any advice on what's best to do. Background - we are a couple in our early 40s with one DC (due to our age very unlikely to have another).

Option 1 Currently live in a really nice part of London and have found a nice two-bed flat which would require approx 280k mortgage that we'd hope to pay off by 60. This feels fine and safe etc.

Option 2 We've also seen a couple of houses that would need us to borrow approx.400k and we'd probably never be able to repay (due to our age/salary levels) but are three/four bed and would obviously allow us to have more room, a home office etc. The plan I guess would be to downsize once DC left home - is that what people do?

Which one would you go for? Instinctively we'd go for the flat - because it's cheaper/good location etc.....but am also aware that property purchases in the UK is a very different thing to where we come from and so we're confused and would love some help.

[HollowTalk]

Can you afford option 2 with a repayment mortgage? Is the repayment mortgage figure the same as the repayment mortgage plus the charges for option 1?

[Luna1980]

so we can afford a repayment mortgage on both properties - but obviously would pay off Option 1 much sooner than Option 2. Then again I would not assume that we'd need Option 2 once we're say 60. The plan is to accrue the same amount of equity in both places by the time we're 60. The 'difference' is that if you look at how much interest we pay on Option 2 is basically the same as interest plus service charges on Option 1 - the rest is pure debt and I guess we can pay about the same amount per month in both cases.

I've never been/had debt before - but having read a few things online (and MN) is a mortgage 'debt' or a form of investment. By the time, we're talking property in London - I mean this is quite a lot of cash and so am scared of getting it 'wrong' etc and 'not getting the system'.

[TeenTitan007]

Your equity in a property is not just your contribution. It's also the appreciation in value of the property. So if you go with option 2, your equity is likely to be much higher by the time you are 60.

[TeenTitan007]

• much higher than the equity in option-1 at the age of 60

[HollowTalk]

Option 2 will rise in value considerably more than option 1, don't forget.

[Luna1980]

Yes, I wonder if thats usually the case i.e. a three-bed house going up in value more than a two-bed flat though the flat is in a more expensive area. Guess it's a bit hard to predict the future

[HollowTalk]

Well, if both go up eg by 10% then property 2 will make you more money than property 1.