I would definitely go for it, it’s actually bigger than most 2 bed flats and with a garden you will have space for shed etc.
If you can look at new builds, they tend to be smaller, but are so cleverly designed with good storage and furniture that is a little smaller to make them feel much larger.
IKEA has a whole section on the website linked to smaller spaces etc.
You can get single beds that are small singles for 75cm wide, where the base is slightly smaller than the mattress, look on the Warren Evans website. That way no one has to have the top bunk and you could have storage under each bed. With a bed against each wall, you would still have a metre down the middle, even if they were both 90cms wide you would still have 70cms down the middle. I think it’s key to look at the beds footprint, as in a small room those extra cms can make all the difference. As others have said flip down desks are good. Also it will be yours so you can decorate it how you want, with paint or paper, that you all choose.
In the living room look at smaller sofas and a small table etc. In the kitchen a flip down table might work.
This gives you a home that you own, now, with no landlord to suddenly give you 2 months notice. Yes your children will grow, but you will make it work. It also paves the way for a more secure future, so if it were me I really would go for it.