Do you regret stretching yourselves financially?

[zlapeo]

Of all our friends who have done well out of property, it is those who stretched themselves.

DP and I are 28 and 30 and thinking about buying a flat for £1.4mil. We’d find a flat that costs £600k acceptable to live in, but not much scope to add value at the lower end of the market.

We could afford the expensive place, but if we change jobs in the long run we’d likely need to sell it. But it’s much more likely we’d make bigger equity gains in the expensive flat vs the cheaper flat, so if we ever downsized then there’d be more money to be had.

Do you regret stretching yourselves financially?

We were advised by parents to “stretch to your maximum budget” 3 years ago. We didn’t, and I’m relieved we didn’t. Mortgage rates have made us have to tighten our belts anyway, but we would have been crippled.

Guess it depends on your definition of stretching, but I’m in a 2 bed semi money territory, not a million pound house in a major city sort of league. I suspect those posters have more of a buffer zone if they over stretch.

The difference between a £600k property and £1.4m property is vast though. An extra £4,000 a month in mortgage repayments. Plus £75k more in stamp duty.

Where are you wanting to live?

If I was 28/30… I think it would come down to lifestyle / wanting kids.

You need to think about the next move too. I’d be annoyed to have to shell out for the stamp duty again so soon after having already paid £££ for it.

Historically, I think people who stretched themselves did do well out of it due to the huge increase in property prices. That has slowed a bit so you are unlikely to see quite the same benefit.

I’d also say… flats are less popular now. I think the average person with £1.4m to spend would choose a house over a flat - where I live you could spend that and the flats noticeably take longer to sell.

Is there nothing in-between? It's strange setting a budget of either 600k or 1.4 mill! I wouldn't suggest totally stretching yourself and most who did are regretting it with interest rates. I would look for a middle ground personally.

We did and I'm glad we didn't. We had a lot of spare money to travel, have fun, pay for DC's education and support for driving lessons, cars etc without having to worry.

I think, depending upon the specific area, that flats increase at a slower rate and hit a certain ceiling.

I think houses are likely to make more gains.

The market is also more limited at the high end flat level as it’s a specific buyer who only wants a flat versus a house. The stamp duty issue also makes sense to move further out to gain more space with a house. Your resale market is more limited.

Historically some would have done the high end flat prior to children then move to the house further out, but the high stamp duty means many miss this interim stage now if they can afford £1.4 million property.

That is definitely one to consider. It wasn't our first property and we already had DCs. We know that we only have the massive childcare costs for another couple of years so that will make a big difference too.

Don’t regret stretching. Mid 50s now and own outright a modest holiday home, and a terraced house in London. Both were max of what we could afford but were always manageable. Helped on the way by low interest rates and a large redundancy payout. I think we’d have struggled if we’d had an interest rate rise in the early years. But we had thought things through. Still about 3 years to go on mortgage and overpaying. Won’t have to remortgage thankfully.

Duplicate post

In your position I'd buy a 600k flat to live in and another one to rent out: you'll still get the benefit of equity raise (albeit taxed on the second property) but also an income in the interim.

I know OP used the example of a flat costing 600k or 1.4M but I think that's a pretty unusual situation to have so wide a range.

I feel like for most people including myself the definition of "stretching yourselves financially" would be a bit more modest!

That terraced house in London now probably vastly more expensive that when you bought it, and unaffordable on equivalent wages today.

That’s part of the complexity of the question IMO - if it’s stretching yourself to buy a terraced house in a good area that you can keep for 30 years, it makes sense.

If you’re stretching to afford a nicer two-bed flat you may have to move out of in 5 years… a different proposition.

Interestingly I also think very few people actually ‘upgrade’ to the next house from that point, as the stamp duty cost is so crazy.

Stretching yourself plus the tax cost… impossible to justify.

The best house you can afford is not the same as you can just about afford the mortgage, but if interest rates move against you you're fucked.

Shit happens in life - people lose their job, get unwell, get pregnant by accident, etc. Make sure you aren't so mortgaged up the hilt that you can't afford for shit to happen. If £1.4 million is actually your absolute limit, I think I'd look for a place that's between £1-1.3 million instead and give yourselves a bit of breathing room.

Anything in life can happen and whilst some on here have had good fortune, house prices can drop, mortgages rocket up etc-a slight stretch then maybe, £700k extra stretch - no

I have stretched myself massively, after divorce as a single parent, to afford a nice house in an area I wanted to live in. I have had to get a lodge but that still doesn't touch the sides. Partly this is due to current high interest rates which I hope will drop a little a some point. It would have been much more affordable pre-Truss, but I have still gone for the house I wanted to go for and not de-scaled my plan. No regrets, at some point it will become easier. I have decided if I want to afford the things I want to afford I will just have to become more successful. Working on it!

Never over stretched, glad we didn’t because when interest rates increased, we’re ok.
Still almost doubled the value of our house in 4.5 years.

It all comes down to personal choice however I do think there is an unhealthy obsession in the UK with house prices.

I earn a huge salary yet have only bought what I need not what I can afford. This means I’ve never had the slightest feeling of being stretched and have plenty of spare money for other investments which I can increase or decrease from time to time unlike a huge mortgage which I’d be tied in to at a set level.

I have paid almost no interest on the mortgage I did have as base rates were virtually nil at the time. I can now get 5% on safe investments and potentially quite a bit more on riskier ones. This will ultimately leave me in a far better position than having had a £1m mortgage which the bank offered and having paid colossal interest over the years even if prices do continue to rise.

I suspect many people buy houses they think match their status. I couldn’t care less about that.

She’s hardly going to know the intimate details for her friends financials is she? That isn’t info that people share.
Are you joking?
I've sat with three friends in separate occasions with spreadsheets looking at their money coming in and going out and weighing up their salary so they can decide what to do next.
Of course some people share fiance info. Not everyone is comfortable sharing their details, I agree, but that doesn't mean no one ever shares.

Don’t buy something where there is a high chance you’d need to sell and buy something else in a fairly short time period - either due to financial changes or due to life changes (baby, job moves etc). You would lose so much on stamp duty, especially at these sorts of prices. Also having something you can stay in (both in terms of size and affordability) means you can ride out market downturns rather than have to sell at a bad time. Buy something you can stay in for 5+ years.

i really don't think you can expect to make a profit on a property these days. We stretched but not overstretched, we didn't want to have to move again as so much money would be wasted with stamp duty etc. We got a 5 year fix and we knew we'd have pay rises during that time so it would feel less expensive as time goes on.

It comes down to what you prioritise, and sometimes how financially savvy you are.
If we'd stuck to the 'financial rules' set by 'money-men' then we'd probably still be in a town centre terraced house. Instead we're in a 3 bed semi in the countryside, this makes us happy.
Along the way I took up stoozing as a hobby, and was economical with the actualite over things like income and out-goings.
But I was always fairly certain of a financial 'escape route' if the shit had really hit the fan.
But we were doing it as a way to live somewhere that made us happy, not necessarily somewhere that made financial gains.

Depends massively on whether you have an exit plan if it gets too much.

We have stretched ourselves a couple of times, when buying houses, but only ever for places which we were likely to be able to sell or rent out quickly, if things got too much and we needed to downscale again.

This is something where hindsight gives you a rather biased answer! (I have stretched three times on homes but it turned out well so of course I will be positive).

My solution when weighing up on how much to stretch has always been to scenario plan - what would my options be if lost my job etc? and then put in place a contingency plan for what I’d do to cope. I‘ve always felt that if the contingency plan felt robust, I’d be happy to stretch, but if not I probably wouldn’t have. Does yours feel robust?

I also think that in reality people have very different back up options for a rainy day. Some people work in very secure careers it is easy to accelerate pay within, some have families who, if push came to shove, could help. Others really don‘t. So the right answer for you will likely reflect these factors too.

Stretching definitely made sense in the past, not sure about now.

But yes, simple maths does dictate that an X% gain in £ will be more on a more expensive property.

@zlapeo if you want to safeguard your money and be in with a chance to maximise your gains, I wouldn't buy a flat. The market for buyers of flats at £1m+ is much much smaller than the marker for £1m+ houses. Also less scope to improve.

I wouldn't buy a flat with a budget of £1.4m