Mortgage free or great house?

[LaAlouette]

Firstly, this is 100% a first world problem I am extremely fortunate to have.

We are moving house. They area we are going to is expensive and we have two choices:

1. Buy a cheaper house and be mortgage-free. We could afford something that is a reasonable size with nice garden, but likely semi-detached on a narrow plot.
2. Spend an extra 150k to get somewhere detached, with a nice spacious plot.

Both would be in a good location. We have secure jobs and are in our late 30s. If we got the more expensive house we could afford to repay the mortgage in 15 years or so but wouldn’t have much left over and wouldn’t be able to save more than the bare minimum for retirement etc.

Thoughts? Do we go with the flawed house to be able to relax financially or actually do we want to spend the money to have a great house?

I’d go for the house.

better house without a shadow of a doubt. You don’t have to repay over 15 years that’s an arbitrary term you are putting on yourself. Interest still low at moment so fix for as long as you can. You are more likely to be getting promotion etc than something really bad happening. If you plan to stay in it a while detached holds value better.

We were in this position and went mortgage free. It’s lovely not to have to ever worry about mortgage / rent. The security is amazing - especially at the moment where everyone is worried about interest rates etc and energy prices. The energy prices still worry us of course but we don’t have to worry about being homeless. Any spare money we have we can use to enjoy holidays etc. We live in a fairly modest ex council semi detached 3 bed in a rural area and we love it.

Deffo option 2! We totally missed the boat in moving in our 30s and in the semi we bought in our late 20s still. Missed all the low mortgage rates. But I was a SAHM for a period of time and we had our family/set up a business etc.

Go detached. We’ve been blessed with elderly quiet neighbours but that will change and dreading it!

150k over 15 years with a 3.5% rate is £1073 a month
150k over 15 years with a 6% rate is £1266 a month

Could you afford both monthly payments if interest rates go up?

Do you have a lot of equity? Can you overpay your give yourself a buffer should the worst happen.

We are heading for a global recession, in your shoes I'd need to find a way of being more secure if I went for the mortgaged house. But you are only in your 30s so now is the time to do it, if you're going to. You also need to think about pensions, no point having to sell your lovely house to pay for your retirement

Mortgage free you can put money into pensions. Bigger house you are investing the same money in property. You can downsize when you retire. We’ve put the money into property. This obsession with mortgage free is a little bizarre. Mortgage free you are more likely to fritter the money than save for retirement. It’s up to you whether you think pensions or other investments will give you a better return than property. You also get to enjoy the larger house.

If we went for the better house I think we would very likely have to either sell to retire or keep working until we’re 70.

Better house, no better investment than property

The big issue is you don’t seem to want a 25 year mortgage. You can usually pay the capital off as you go along but make sure there are no penalties. For many people, full time work will ne necessary in their 50s for one person in a couple. Mainly to get maximum pensions. If you think £150,000 will stretch you (even at 15 years) I’m not sure you are earning enough to semi retire 10 years early. Have you truly done your planning?

Being mortgage free is only one element you need to reduce your income snd still have a good life. It will depend on mortgage rates and what you think the future holds regarding your salaries and house prices. Would you be better off saving and having additional pensions? If you want a relatively short term mortgage, you are putting stress on your finances for the goal of not working full time pretty early.

You might also look at which house might give you more equity in 15 years time. Historically this has outstripped saving conventionally. It’s difficult to know what will happen in this new world!

That's a good point @TizerorFizz

Op why don't you get a 25 year deal, but overpay by the amount you would do with a 15 year deal, that way you have a buffer if something changes. You will be able to reduce the monthly payment to that of a 25 year deal or even take a payment break with the money you've overpaid by. This will give you breathing space whilst you sort out 'whatever has happened'. If nothing happens you will be mortgage free in 15 years as planned

A bigger / more expensive house is more likely to appreciate more capital than a smaller one meaning you do still have the opportunity to downsize on retirement or if you need to before that. I had the same dilemma and although I would probably have gone mortgage-free if I could have found the right house, I got a larger one and the value of it has gone up a lot more than putting into a pension. When I retire I'll downsize and have a big chunk of cash left over to fund retirement. A smaller house wouldn't give me the same downsizing option.

Why decide immediately given the economy?

If it were me, I would go mortgage free now but start putting the equivalent monthly mortgage repayment into a savings account. Assess the impact on your lifestyle after 6/12 months, see where rates and house prices are then etc. and if you do decide new house, you can lower the mortgage by the amount saved.

There's a lot of unknowns at te present and maybe it's a decision to be made when there us more stability.

Better house, it will increase more in value over the long term.

Also you are both young, your salaries are also likely to rise making it more affordable.

Do neither of you have a pension at all?

How much are the two house values?

A 150k mortgage on a 300k house is very different to a 150k mortgage on a 800k house.

I agree with this. I am lucky to be mortgage free but had I not losing my job in the height of Covid would have been an absolute disaster for me if I’d had a mortgage. Things happen you can’t always predict but nothing beats being mortgage free. It’s up to you of course but I know which option I’d go for. It depends a lot on what the house choices are though. Detached is always more desirable but doesn’t guarantee noise free surroundings if you have close neighbours.

We’ve just gone for option 2. If inflation takes off, I’d rather be sat on a nice asset. I’m also conscious that our children will probably bounce backwards and forwards at Uni age and I want a house that’s big enough for an extra adult to live at home.

We also want detached, for all the reasons people have said on this thread. Yes, it’s a fairly hefty extra mortgage (we were months away from paying the old one off) but we have pensions and it will be paid off before retirement. We took out a 10 year fixed rate at a good rate.

We also take longer term mortgages and then set up overpayments each month to take it to the equivalent of the shorter term. That way if we are ever in difficulties we can cancel the overpayments but still clear capital.

Could you use the £150k and buy a buy to let?

Is it a linear option? Is there not a situation where £50/£75k will get you more space/larger plot/small detached? So slightly lower risk, but nicer house?

Better house every time. Think of it as an investment that you get use of. You can always downsize later.

Better house, it will be a good investment. You can downsize when you retire.

Mortgage free. There is no.such thing as a guaranteed job, (yes, even if you're a doctor or a lawyer, you can have health problems, work.problems, get pregnant tomorrow with triplets etc etc) but a fully paid off home is a guaranteed place to live.

Mortgage free 100%

You will be setting yourself up for a far more comfortable and stress free life.

I'm 43 and husband 45 and we are mortgage free and it's is a fantastic feeling and takes so much pressure off life.

Surely there's something between having no mortgage and a £150k mortgage?

But £150k is a small mortgage by todays standards, and you don't have to pay it back over 15 years. You could reduce the payments by borrowing for longer.

I'd usually say - go mortgage free. But if you can get a much nicer house for such a small mortgage, I'd be tempted to at least explore the middle ground.

We went mortgage free, we don’t live in a house that matches our wages if that makes sense as we didn’t go very big house like most of our friends did. Now in our fifties we have had 20 years of no mortgage, loads of fab holidays and never any money worries. We raised our dc in this house, it’s a three bed semi, unless we get noisy neighbours we will stay here. I don’t want to be moving house when I’m retirement age. If money is tied up in it and you need it then you have to. My Aunt could not stand to leave the house she had lived in for 50 years so she lived in a six bed house that she could not afford to heat until she died aged 94.

My friend has a gorgeous detached house, the neighbour at the end of her garden has a dog that lives outside and barks all the time.

I became mortgage free when we relocated from the SE to a cheaper (though nicer!) part of the UK. I was 37. We did manage to get a house that was slightly bigger than what we had, but in a nicer area, bigger garden, garage etc, so we didn't have to sacrifice. In todays climate I am so grateful not to have to worry about housing costs. We could've afforded a bigger house but we don't need it and whilst it may have been a good investment, the surplus money we made on our old house we put lump sums into our pensions. We've also upped our monthly pension contributions and I opened an under 40's lifetime isa so we hopefully are doing the right thing for the future.