Smaller House with Large deposit or Larger house with smaller deposit?

JimLad

Morning all!

My partner and I are are having a bit of a house buying dilema.

We have our eye on a couple of houses. One of them is around 180k with 3 bedrooms and we could afford it with a 30% deposit. The other is around 220k with 4 bedrooms in a much better location and we could afford that one with a 20% deposit.

Obviously there would therefore be a difference in the monthly payments, about £250 more.

We could afford the more expensive one but with the cheaper one we would be paying much less in interest and be able to overpay a lot.

Is there anyone out there with any wise words of wisdom for us?

BornAtTheRightTime

Location location location...

Seriously what is more important to you? Mortgage paid off quickly and lots of money to spend on other things - in which case go for the cheaper property? Is this move to the 'forever' home in which case go for the one you are most likely to feel contented in - usually the best location you can afford while still being big enough 'forever'.

BitterAndTwisted

How affordable would the mortgage payments on the more expensive property be once interest-rates inevitably rise? Could you afford the payments if one of you should become unemployed? There are very dark clouds on the horizon.

In my book no debt is always better than more debt. A small debt much better than a larger one.

JimLad

BornAtTheRightTime wrote: »

Location location location...

Seriously what is more important to you? Mortgage paid off quickly and lots of money to spend on other things - in which case go for the cheaper property? Is this move to the 'forever' home in which case go for the one you are most likely to feel contented in - usually the best location you can afford while still being big enough 'forever'.

I think we are leaning towards the better location however its not necessarily the "forever" house. That would be something more in the countryside, but not for at least 10 / 15 years.

BitterAndTwisted wrote: »

How affordable would the mortgage payments on the more expensive property be once interest-rates inevitably rise? Could you afford the payments if one of you should become unemployed? There are very dark clouds on the horizon.

In my book no debt is always better than more debt. A small debt much better than a larger one.

We could definitely afford a few percent increase between us. I think we would be looking at a 3 to 5 years fixed mortgage. But as you say, if one us loses a job then it would not be possible on income alone. We would however be having a "nest egg" left over to cover a few months mortgage if one of us becomes jobless.

poppysarah

bigger house = bigger bills too.
council tax, water rates, heating costs etc

LittleMissAspie

If neither of the houses are your forever house and you're planning to move in 10 years I would buy the cheaper one and pay it off quicker. You'll probably get more equity by paying less interest, but you can do some projections to check.

sonastin

Historic wisdom says that in the long term, house prices will always rise. And more a house is worth, the more its price will rise. So historically the advice was always to stretch to the "best" house you could afford.

In todays market, it depends whether you think we've hit the bottom yet. Expensive houses stand to lose more too. But if you're not planning on moving in the near future, you can probably weather out the crash if it does come. But you'll have spent more in interest in the mean time.

In all honesty, once you've established that both options are affordable, I'd take the financials out of the equation and just look at which one you want to live in more. Without a crystal ball, you'll never know which one is going to prove to be the better investment financially. So go for "quality of life" not "bang for your buck".

Mrs_Z

I'm with LittleMissAspie. Only go for the bigger one if you're likely to stay there for longer (ie. plans to start family etc) and your jobs are relatively secure and you can comfortably afford the extra mortgage (and slightly more expensive bills). Moving in itself is expensive so if you can stretch to a bigger house now, it might be a risk worth taking. Could you afford the mortgage & the bills if one of you lost their job?

Houses in good locations always hold their value.

SamBG911

20% deposit is still a healthy deposit, go for the more expensive property as long as you CAN afford the repayments, in the long run you will be wealthier then if you take the cheaper/smaller option.

Mallotum_X

Do you need a bigger house?, if you will need the space can you extend the smaller one in the future.

Which is on the better road?

When we bought our current house we went for a slightly smaller house and slightler less money than the main alternative. But it was also on a quieter road, and with a much bigger garden (something we were keen on). So although I sometimes wonder what might have been when i pass the other house - its literally just round the corner so pass it most days - im pretty sure we made the right decision.

We put the extra saving on the repayments into the mortgage, so much so we will be mortgage free in another 3 years - something we couldnt have done so fast. It depends therefore what you may want to do with cash instead, if you can over pay a cheaper house by the £250 a month you could knock years off compared to the other one.

Its hard to suggest which is the right one to go for, but im sure you can weigh up the options!

good luck