To Mortgage or Buy Outright? - please help!

Saffy100

Hi guys, this is my first post so please be gentle. My husband and I have recently sold our property to move to another county closer to family. We're currently staying with family while we look for a house with money in the bank and have now two options.

House No.1 which is a lovely new build in a non-estate position near the top of our budget at 240k. We would use all our cash savings (which would pay for over half of the house) and a 100k mortgage which is the most we can afford without stretching ourselves too much.

House No.2 which is a much cheaper house at 170k in an estate position. Its probably about 10 years old and on an estate of very similar houses. We could just about buy this house outright.

Two very different houses but both offer 3 bedrooms and the same amount of bathrooms/reception space and in the same village!

My question is, which would be the better thing to do? Buy a house of 170k with cash and have no mortgage or buy a 240k house with cash and mortgage? Seems a simple question really but from a financial point of view, is it best to tie all your cash up in a cheaper property or is it better to have a mortgage and buy a more expensive property?

We plan to move on again in a few years and most likely will need a mortgage to move up so which would be the best way to use our money?

Does that make sense to anyone? :rotfl: Please help! many thanks!
Saffy

UK007BullDog

If you plan to move again and sell or rent then I would look at this:

1. Which house needs the least amount of maintenance?
2. Which house would sell easiest or rents out best?
3. Which house has so far increased its value more than the other?
4. Do you really want to struggle with a mortgage? You might be able to save that money towards the next property buy in an ISA.
5. Which one does your heart say you would be able to live in happily?

For me personally it would be point 3, as you would try to always better yourself with each house sale/buy. And then number 1,2 and 5. 4 would play a role but I would take that spare money and buy a BTL or invest elsewhere to supplement the non-existant state pension.

Saffy100

Thanks for a hasty reply BullDog!

In answer to those questions...

1. Which house needs the least amount of maintenance? - the new build

2. Which house would sell easiest or rents out best? - the new build I would think as it's really attractive, traditional but brand new in a non-estate position
3. Which house has so far increased its value more than the other? - no idea as one house has only just been built
4. Do you really want to struggle with a mortgage? You might be able to save that money towards the next property buy in an ISA. - good point, we already had the same sized mortgage with the house we just sold
5. Which one does your heart say you would be able to live in happily? - the new build!

From my answers there it looks like the new build is the way to go but we want to be sure we're doing whats right with our money/mortgage. The cheaper house isnt really what my heart wants but it just seems so tempting when it would mean no mortgage!! We need to bear in mind that either house would be a stepping stone as we would hope to move up to what we really want (but cant afford yet) in the future!

itsakidsworld

If you are looking at the long term increase in market value as a guide to an opinion, then I would say buy the house in the non-estate area. The reason for this is that on an estate, houses which are all similar have a maximum price and are difficult to attract more cash even if you have done everything to them.

However, should you buy a house of individual character then you always have a chance of creating a better profit as the house is unique.

But if your thought is based on affordable living and confort and you like the house on the estate then that swings it for you as it will give you more peace of mind in the short term.

Happiness is the main thing and buying into debt can erode happiness into sadness.

UK007BullDog

Go to an estate agent and pretend to be a tennant and find out the going rates for rent in that area for the new and the older type builds.

Remember that when you take on a bigger mortgage that you can afford it. You did not say how much more it will be. Find a broker who will give you keyfacts for both. To actually see how much you would be paying and taking in a big cut out of the monthly budget might swing it for you as well. For someone having to pay 500 or 800 more per month can be quite traumatic.

Also dont forget the more expensive the property the higher the survey cost, stamp duty, legal fees and maybe even the council tax.

Saffy100

The mortgage will be 100k on a 240k house (works out about £570 a month) if we buy the new build (we previously had a 90k), we'll either have a small mortgage (about 20k) on the 170k house or buy it outright.

lynzpower

Personally, Id buy the one outright. The idea of not paying any more interest to the bank appeals to me no end, plus you are not at the whim of the banks and the potential changes to interest rates.

A house is for living in is my opinion and if I was in your shoes Id be using the 570pcm to go on snazzy holidays and enjoy life to the max.

UK007BullDog

You might not be able to find a mortgage for £20K. most lenders want you to borrow at least £25K to £30K. So you might have to borrow more than you actually need. Speak to a broker to find out exactly how much you WILL have to borrow even if you do not want to borrow that much. ;-)