Max out borrowing to buy a house? Or borrow less and buy a flat?

Greenone

FTBs in South London having a bit of a dilemma as to whether to buy a house we can grow into, or a 2 bed flat that we can sell 5ish years from now and move up the ladder?

We have £40k funds available for fees and deposit, and can borrow circa £380k - but i'm finding it very difficult to decide whether to buy a forever(ish) home or a flat and have more money in the bank every month!

I appreciate there are so many factors which go into this but any advice welcome.

princeofpounds

No-one can give you a straight answer because it depends entirely on house prices vs. interest rates, both of which are very hard to predict over a long timescale.


Far wiser to accept that you don't know, and to make your decision based on what you need, and what sort of risks you are taking.


One guide for starters is, even if you get a cheap variable mortgage, always check to see if you can afford the same mortgage on a long-term fixed deal (typically more expensive at the current time).


This is because the long-term rate is the market's best estimate (crudely speaking) of average rates over the whole period. It will almost certainly be wrong to some degree, but it's not a bad place to start when thinking about safety margins. Too many people fall into the trap of thinking only about the first month's payment.


Another important issue is how secure your job is, and how easy it would be to get a similar-paying job if things went wrong.


If you are thinking on a 5 year timescale, I'd be tempted to stretch and cut out a move if I didn't think I would be dangerous. Moves are expensive things, especially relative to cheaper houses. Probably the best bet would be a home which could be extended into a forever home.

Greenone

Jobs are both very secure (IMO).

If I stress our income at a 6% interest rate, i'd say the most i'd be comfortable borrowing (perhaps i'm slightly risk averse) would be £300k, just under 50% of our joint income - which would just about get us a house on the outskirts of London, perhaps South Norwood.

But borrowing £240k would get us a flat and leave more money in the bank to save for a family etc., before moving into a bigger home.

My main concern is buying the flat to then be boxed out of buying a house in London at all! But I also want to be able to save a fair amount over the next 5 years and be a bit more liquid.

Mallotum_X

There is no fast rules. However I would always choose a house over a flat unless there was a very strong reason why you want to live in a flat.

If the market/job/life changes and you end up in the same property for 10/15 years would you prefer to be in a house or flat. Which offers most chance to expand if you cant move.

Pete9501

You might borrow less for the flat, but any service charges are going to eat into that advantage. I would opt for the house if you can.

Hoploz

I always advocate stretching as far as is comfortable as house prices tend to rise and can go out of reach. The house is likely to rise more than a flat both due to % increases and as flats are often more freely available than houses, and also a house is likely to be a longer term prospect. Meaning you are likely to take fewer steps up the ladder.

Lord_Baltimore

House. For all the reasons mentioned but make sure it is affordable.

With respect, I do doubt that you know what your 'Forever' home is yet. You may be surprised how life manipulates your preferences as you get older...

JimmyTheWig

I agree to stretch yourself to the house if you can afford it.
I accept that the flat will be cheaper in the short term, but will it really save you money if you have to pay out for solicitors fees, estate agents fees, stamp duty, moving costs, etc to later buy a house. Plus the stress of selling and buying. Much better to reduce the number of moves you make if you can.

If it was a question of a flat now or a house in a few years time then I would understand the dilemma.
If it was a question of a nice flat or a house you weren't keen on then again that's a problem.
But it sounds like you can afford the house. If you can see yourself living there for the next 5-10 years then why not go for it?

cloo

I second or third or fourth going for a house. The less you need to move, the better, and the longer you can stay there, the less it matters what the market does.

Greenone

What about letting the flat in 5 years time and buying a house then? We both expect (read 'realistically hope') that our salaries will increase at least 20% in 5 years.

In 5 years we can save another sizeable deposit to put down on a house.

goodwithsaving

If it were me (which it isn't) I'd go for the house, especially if you were pondering a future with children. Each time you move it costs money, more if you are buying AND selling, which you would be next time. The next 2 or 3 years could purely be saving to pay for the next move. That's a long time of 'dead money'. We went with a house with the long term view (even if it's a bit spacious for us just as a couple).

If looking in Norwood / Crystal Palace area, I'd look at the trends of houses vs. flats. I think you may be better off buying a house if the flat values don't increase on par as it'll be harder when you do come to move on up.

It's a lot of money now but think of the saving down the line. As you pay back the mortgage and re-mortgage, it'll seem less scary next time round.

Look at the train lines though. Mind you, most stations along that route will be a nightmare in the morning.