Which house?

20400keith

I have a (fortunate) dilemma to which there's probably no right answer, but I'd welcome any thoughts...

I live alone and have a secure job. I retire in 10 years. My mortgage is £25k and I overpay £1k a month but have no savings.

I'm moving with work and have seen 2 houses I like - one for £375k and another (bigger) for £450k.

Do I buy the £375k one, which will allow me to be mortgage free (but I worry that I'll then have savings that may not keep pace with future property price rises)

Or the £450k one, upping my mortgage to £50k, and invest my spare cash overpaying the mortgage.

Neither house will be my retirement home, so I'll be planning to move again in 10 years.

Yorkie1

Ignoring firstly the price, are the properties broadly similar in whether they tick your other boxes? Location, number of bedrooms, built-in cinema (!) etc.

Do you want and/or need the bigger house? Would it be a chore to keep the extra size (inside or out) tidy?

You'll be paying an extra £2250 stamp duty on the bigger house.

You'll pay more EA commission on the sale of the bigger house in 10 years' time.

I imagine that you'll pay more interest on the bigger house.

You could choose to invest the surplus from the smaller house repayments either in investments or on the mortgage.

You will need a crystal ball to decide whether the extra costs you'd pay on the bigger house will be cancelled out by any gains or losses on savings.

If, all else being equal, the bigger house doesn't add anything practically or emotionally for you, I wonder whether the smaller house is a better bet.

If, having read all I've written, you're saying to yourself "Yes, but I really want the bigger house", then you've got a clear steer!

budgetdiyer

Can i throw in a curve ball? Go for the £375k house and use your surplus cash to purchase a buy to let?

grey_gym_sock

i wouldn't buy the more expensive house purely for investment reasons. property is not a good investment without any rental income. you wouldn't buy a property as an investment and just leave it empty. it could do well if the market happens to shoot up, but on average it will give a poor return.

it would make more (financial) sense if you were going to have a lodger.

if you have surplus cash, consider either stocks & shares, or buy to let. both are on average higher return than cash on deposit, but a lot riskier.

or index-linked gilts, which are lower return but safer (if held to maturity). they will do little more than preserve the real value of your savings.

hcb42

if you are overpaying at that rate, and will be mortgage free in potentially under 2 years, then I guess it is a question of how soon you want to be mortgage free and how that will be impacted if you increase the mortgage to £50K, neither of which sounds unaffordable, so ultimately it might come down to which house you want to build your life in;..

dawyldthing

i'd say the smaller one then you can take a backseat as you won't have any major outgoings so can enjoy life more