Should we stretch to a £925k house or stay within budget?

[Stansteding]

We have a house worth £515k with a mortgage (SE England) and I have £282k cash after a flat sale to bring our buying power to £800k. We’ve been looking at houses in this range but the perfect house came up which ticks all boxes (except needing painting and new carpets) for £925k. Right now we have about £1000 a month left over to save, both work full time and two small kids so I am enjoying having the flexibility and safety net of two incomes which can cover the mortgage on their own. But now I’m thinking with the enormous amount of stamp duty we would pay, maybe break the mortgage and borrow the extra £125k needed to get this house. I’ve got the mortgage in principle just now and it would be around £600 extra a month mortgage payments if we extend our mortgage by 10 years so taking us past retirement age instead of mortgage ending a few years before. I am just stuck thinking that all the £800k houses have some sacrifice and maybe we should go for this more expensive house. Another factor is we have a 5 year fixed mortgage as I never thought I’d need to extend our mortgage, but my flat did sell for less than I paid for it. Coupled with that the interest rate we got right now is good at 3.9% and would go up to 5.2% and is 1.5 years into the 5 year fixed. Really wishing I’d gone for a 2 year fixed so we wouldn’t be on the hook for £8k to break it!

I know this is a first world problem but I just don’t want to make a mistake as it’s enormous sums of money and I’ve never had this much in my life and I’m afraid of making an error we can’t recover from. But equally I don’t want to be so risk averse that we don’t have more space for the kids.

Yes the £1x is after everything. I only transfer it after the bills paid and money put in a separate pot to accumulate for things like the car or MOT. On the rare occasion we haven’t put anything away if something really big came up (thinking about the time the car needed loads doing!).

honestly the upgrade in house is for the kids. I love our current house and would be mortgage free but they have a patio and not a garden here

£400k is a lot to pay for a garden for the kids, realistically there’s a finite limit on how long they’ll use a garden for playing out in and you’ll be paying for it for decades. The way things are going nothing is getting cheaper any time soon and with two teenagers who rarely use the garden but who need money for hobbies and activities with friends having more disposable income makes a huge difference to our quality of life.

Will your earnings go up considerably in the next decade? Is the house in an area where it would sell quickly if needed?

I didn’t stretch and I’m about to make the house I bought just how I want it. I love the financial freedom that I now have that I would not have otherwise had. To me, being able to go on holiday and plan for the future is more important.

It seems to me that these are the factors you need really to think about from a day-to-day perspective. What would make you happier? The house or the little luxuries.

Are you likely to get an inheritance or 2 down the line? I would stretch myself if so. Go for the best house unless it’s so big you would have to downsize.

Also consider your savings / budget should your two young kids both want to go to University. Even if they take out loans for tuition fees, the maintenance loans will need topping up by at least £5K each child per year. We have currently finished paying £1k a month for our eldest for 4 years and are just about to do the same for our youngest, which is a substantial amount pre-tax to earn.

We stretched for our current house and don’t regret it exactly, but there’s a lot of other expenses that come with a bigger house we hadn’t anticipated. Once we had to renew the mortgage and pay more interest it got a bit challenging. So in your sums, remember that everything goes up with a bigger house - utilities, cleaning, any sort of repairs. Etc. We had to replace the carpets and windows and bathrooms and haven’t managed the kitchen yet but it’s all a bit relentless.

I would be wary. I bought a more expensive house at age 44. Did so to move to a more convenient location which cut travel by 30 minutes a day. As it happens it delivered more than that as the location proved considerably cheaper travel wise as it is in a bus route and I can cycle more now. Paid off the mortgage at 54. I am now 55. My outlook changed in my early 50s and early retirement has become much more important. Before that I would have expected to go to state pension age.

You need to weigh up carefully what you gain with the freedom you may lose later. I don't regret my choice even though I would be retired by now had I stayed where I was. In my case I simply couldn't hack the travel any more.

What are your plans when your kids leave home, would you be able to downsize where you live and free up money if you did want to retire earlier?

Probably not considerably warming wise. Yes the house is in an area it would sell quickly if needed and at the same price bought if not higher (although tricky to predict it’s a popular family area near London).

Yes you are so right. And this is my main concern is leaving us exposed financially to not be able to withstand any shocks.

I wouldn't.

You have no idea what will happen in the future and stretching yourself financially is dangerous. You could be made redundant, interest rates could double, you could find yourself developing health problems that make you unable to work until 68.

I'm glad we didn't stretch our mortgage - both DH and I ended up developing serious health issues which meant we both had to take early retirement at 58 and are now just about getting by financially.

If we hadn't paid our mortgage off by then we would be in trouble.

Yes you are right. Difficult to weigh up but I do think we’d sell
in 20 years to downsize. I think I leaving towards it’s too much of a stretch but will keep my mind open if a house that was similar came up. I think also I may consider making a lower offer although it’s unlikely to be accepted. But definitely need to think more.

Interest rates and cost of living are a real concern. And as you say, I’ll health will completely change our plans if they arrived for us.

In a situation where interest rates are high and prices at rock bottom (early 80s, early 90s, 2009/10), it's a sensible calculated risk.

In a situation where interest rates could rise, prices are likely to fall, and there is a war and a deep recession around the corner (now) it would be exceptionally unwise.

@Stansteding it ticks all your boxes, except one, the most important, can you afford it if life goes tits up? The answer is no.

Retirements are long, jobs are insecure and harder to find post 55 in the event of redundancy.

Just a last thought. In our old house, either of us could afford the mortgage and the bills for quite a while if anything happened. In this house that’s not quite as true. We have both worked at our employer for 18/20 years and the industry seemed super stable… until now. Now it’s totally possible that one or both of us will be made redundant and it won’t take long for that to be a problem. I don’t regret it exactly, but I do miss the security of easy affordability.

I don’t think it sounds like the house for you. An extra £100k for a slightly better house is a LOT of money. Don’t be fooled by the thought that it’s “only” £100k more, on top of the £800k you have budgeted. If it’s bigger it could cost more to maintain, heat and be in a higher council tax bracket. You will enjoy life if you can give your kids lovely holidays and other experiences as well as a bit of garden.

You’re right to prioritise location. What’s your timescale for moving? If you’re not on a deadline you can afford to wait and be choosy.

Thank you, this is a very good point

Thanks for excellent points. So right now we have cash in the bank and have a suitable house so we have time to look. Ideally I would like to find somewhere in the next year but only because I worry about house prices getting higher. The area I live seems to have exploded price wise since covid with lots of Londoners moving here.

probably the reason this house made me so gobsmacked was location. But maybe that tells me to prioritise location with the £800k houses and just wait for the right one to come on again.

Your calculations are based on the estimated value of your current house, plus the increase in mortgage. What if your current house doesn’t sell for its estimated value?

Thanks yes very true, i haven’t added in the extra costs of running a big house. I do think our house is likely to sell at that price as it’s under quotes and a good location however you are right, with the way the economy is and interest rates it may not.

I'd rather have the disposable income. Think about all the expenses teenagers have- school trips, driving lessons, university.

Quite a bit of info missing.
You have 800 cash deposit? What's the current mortgage? Where did that come from and how much is it? 3.9 with HSBC is very good. We applied last week at it was 4.6.
If you manage to save 1000 per month already you must be high earners given price increases living costs etc.
You need to think about how you want to live with your money. Childcare/ clubs costs, holidays (camping or Florida?) cars etc.
We are about to take a 260k mortgage which is our biggest ever. 80k of that is to pay stamp duty and costs. That translates to 1500 per month over 25 years and would end when we are 65. It seems very daunting but when we enquired with friends (down south, similar or less earners) this appears to be the average. Friends up north generally have only 150k mortgages max but also don't move.
I wish we had stretched more when younger and not moved. By now we would be mortgage free in a far better house than we can afford now. But that's life.
I would try to stretch for the house that meets more of your boxes. (Or the house you get a feeling for)

My BIL stretched in this way and when rates increased and took away their very last cushion, he and his DW became so stressed that it's affecting their marriage and now, BIL's health. A recent car problem which would have been easily absorbed if they'd spent within their means, has caused BIL such angst and desperation that we're genuinely worried about him. The big, well-located house actually isn't the source of joy it should be for them. It feels like a terrible weight. They need to sell but that now feels like defeat and misery.

I don’t think I appreciated just how different I would feel in my late 50s compared to in my 40s. Ten years ago I would have said that I was going to carry on working forever - now I am looking at when I could feasibly retire. No health issues but it would be nice to have some time with DH and we couldn’t even contemplate retiring or cutting back if we still had a big mortgage.

^ This from @RomainingCalm

Plus a couple of other things to consider.

How old are your children? How likely are both you and DH to experience wage growth over the next 10 to 20 years? Are your kids likely to go to university? Will you inherit something? Will your kids really appreciate the extra outdoor space in 5 years time? (Spoiler alert, they tend to stop "playing" in the garden in their teens).

At what stage would you be prepared to move again to free up capital to pay your mortgage off? What are the pension pots like? Does the £1k a month savings literally go into savings or are you using that towards holidays etc? What is your emergency buffer like?

Can you afford to wait and see what happens to the market?

Prices for everything are likely to go up, not down over the next 10 years. The overall economic outlook is looking pretty rubbish long term, and jobs that were once very secure are less likely to be so in coming years (unless a profession like teaching, medicine, nursing etc). Kids are going to need even more help themselves to get on the housing ladder too. Pension pots will need to be bigger to maintain standards of living.

If you can justify the spend, having taken all that into consideration - go for it. If not, I would take a moment and reassess your options.