Buy what you can reach or what you can afford?

Xiderpunk

Hi wizened folks,

I would like to get some opinion on the wisdom of buying what you really want because you can even if somewhat painful on the mortgage against what is easy on the wallet but a bit of a compromise.

An example:

Couple A: Can obtain an 80% mortgage of 400,000 on the basis of a 100,000 cash equity. They are looking therefore at decent sized properties around the 500,000 mark. This however equates to a relatively high repayment amount of their mortgage. They can be considered as stretching their budget. Couple A both work but one partner is considering leaving work for child birth meaning a similar mortgage is unlikely to be offered down the road.

Couple B: Can obtain the same mortgage but are mainly looking at houses at the 300,000 mark for the very affordable repayments. Requiring a 60%-70% mortgage. Same situation for couple B. Both work, although one is leaving to become full time mother. Space might be tight and compromises will have to be made.

Of course this has a basis for a real life situation.

On the surface it comes down to risk, how secure is mister A in his job, what is plan B if it all goes wrong etc etc.

This is a decision I am sure most people have made or will make at some point in their lives. Therefore I am interested to hear arguments for and against.

diable

Remember interest rates are low what happens to you equations when they are 8%?

PasturesNew

Buy the cheapest you can stomach ... and stop dancing to The Man's tune.

Running_Horse

Both my houses were slightly above my initial budget. It is amazing how much extra house you can get for a few thousand more. But obviously don't totally over extend yourself.

JournalGirl

I used to work on the principle to buy the best you could afford, as you could reasonably expect to become better paid over the years and the mortgage would become more affordable. This worked for us.

Not sure that logic works in today's climate though....

michaels

I tried to have it both ways buying cheaper but on a plot with scope to extend if finances warranted. Cheaper you buy the less stamp duty and council tax you pay.

vivatifosi

Obviously a lot depends on family, schools and so forth. We are a couple without kids, so what I say has to be put in that context. However I don't see the point of stretching if you can buy something that does the job and is still nice.

I'd rather live in a cheaper but still lovely house and have low outgoings. I'd rather go on holiday several times a year and spend money as I want to spend it with money left to save for a pension. Stretching is fine for FTB's, other than that I don't know anybody called Jones and see no need to keep up with them. Not having very much money and having to scrimp and save, even if you're asset rich, isn't very much fun for any long period of time.

JonnyBravo

Different folks, different strokes.
My perspective?
I'd buy the most you can afford with sensible thought given to job security, protection against rate movement (either be sure you can afford 8% etc or get a fixed rate), future likely pay rises/promotions.
There is, of course, no right answer.

silvercar

We've always stretched to buy the best we can afford. Mainly because selling and moving is so very stressful that we want to minimise the number of house moves we make.

Mary_Hartnell

Try to buy a house not a flat.
Try to buy flexibility to extend if needed.
Try to buy something suitable for "rent a room"/granny flat.
Try to buy low heating costs (I don't know the current figures but it used to be said the the cost of heating a house over 100 years was three times the cost of building it)
Try to buy a good or at least improving area (Location/location/location)
Don't buy a money pit.

LittleMissAspie

For our first house we managed to find something well below our maximum budget and I'm really glad we did. We could have stretched to a bigger house but this suits us fine for now and we are only planning to live here for about 10 years. The mortgage will be paid off in maybe 6 years then we'll save a big deposit towards our second and final house.

When we buy our final house I don't mind stretching for that, as the aim will be to live there forever. The aim of the first house is merely to build up equity to go towards the second house, so the sooner we can pay it off the better.

When I say stretch, I mean borrowing 3x joint income. That's a hell of a lot of debt to me.