'Stretch yourself' - why?

DD265

As prospective FTB who haven't yet applied for a mortgage we keep getting told to 'stretch ourselves' and borrow 'the maximum we can'.

I can see from my searches that the houses in the area we're looking at are very different at £150k and £180k price points, for example, like we're stepping up a band in terms of work required/project vs 'finished' etc.

But why do so many people think it's a good idea to max ourselves out on a mortgage? Yeah we could probably live on spaghetti hoops on toast and pay out £1k a month on a mortgage, but surely we're better off picking a repayment number that we're comfortable with now (which is still £200 more a month than our rent, incidentally), and is a manageable stretch if interest rates rise? I don't think these people mean 'go for a reasonable amount proportionate to your take home', I think they genuinely mean 'take every penny you can get'.

What's the logic?

davidmcn

Who are "these people" of whom you speak?

PasturesNew

The logic is that as prices rise, the gap widens.

Look at £150k house today and a £180k house - and when the market rises and they both go up by 50% (£225k & £270k), instead of needing an extra £30k to move to a bigger house you're looking at an extra £45k...

That's all really.

Just that the gap widens... and you might find that you can never quite re-mortgage high enough for that gap again.

Overall, over the lifetime of the mortgage, stretching to that extra £30k now will cost you £60k to pay back.... but that £45k would cost you £90k to pay back ... so you do end up saving £30k if you can stretch to it now.

DD265

davidmcn wrote: »

Who are "these people" of whom you speak?

Family and friends mostly.

PasturesNew wrote: »

The logic is that as prices rise, the gap widens.

Look at £150k house today and a £180k house - and when the market rises and they both go up by 50% (£225k & £270k), instead of needing an extra £30k to move to a bigger house you're looking at an extra £45k...

That's all really.

Just that the gap widens... and you might find that you can never quite re-mortgage high enough for that gap again.

Overall, over the lifetime of the mortgage, stretching to that extra £30k now will cost you £60k to pay back.... but that £45k would cost you £90k to pay back ... so you do end up saving £30k if you can stretch to it now.

Thank you, that does make sense!

jonnygee2

But why do so many people think it's a good idea to max ourselves out on a mortgage?

A key goal is to reduce the number of times you will need to move in your lifetime. Every time you go through the buying/selling process you lose a large amount of money to stamp duty, legal fees etc (I'm sure you are familiar!).

Most first time buyer's household income is trending upwards and they would expect to outgrow their first house at some point soon and want, and be able to afford, something better.

Going a bit larger / better, if it means you'd be happy there for longer, makes sense.

Yeah we could probably live on spaghetti hoops and pay out £1k

Possibly too far! Also how on earth do you get to 1k on a £180,000 property? If this is what you are looking at I'd suggest you look at longer mortgage terms.

Red-Squirrel_2

They mean get the best you can afford even it means a bit of belt tightening, because then it saves you having to do it all again a few years down the line, which, trust me, once you've been through all the legal faff you won't want to!

SG27

Dont stretch yourselves. Whats the point of having no spare money and panicking at each months IR decision.

steampowered

That logic makes perfect sense to people who have lived through 20-30 years of house prices rising at an extraordinary rate. Because that is what they are used to - the more house you bought in the 1980s the more money you'd have now.

I'm not sure it makes sense today. It is unlikely that house prices will continue to rise at the same rate over the next 20-30 years. There is only so much that people can afford, even with mortgages being freely available.

If you are perfectly happy with a £150k house and would be happy there for at least a few years, I don't see there is much benefit in stretching to a £180k house just for the sake of it.

You could always put your spare money into an investment like a stocks & shares ISA for a few years, which would give you a good return.

ThePants999

I think it still makes sense, because moving is so ludicrously expensive...

DD265

Thanks all. Those reasons do seem valid and I can understand why we should consider it as an approach.

Our plan is already geared towards the long term rather than a 'starter home', it's just the £150k properties typically look like they need new kitchens/bathrooms whereas the £180k properties generally appear to have been done recently. So any money we're saving initially on mortgage repayments is more likely to be ploughed into improvements - another consideration.

Definitely some food for thought, and cause to spend more time looking at different numbers.

scottishblondie

Stretching yourselves doesn’t necessarily give you exactly what you want. If the 150k houses are the same size and location as the 180k houses just not recently done up, I would go for the 150k house every time. Then you can get the kitchen, bathroom etc that you like even if it takes a bit longer and means living in less than ideal conditions for a while. We’ve just bought a new house that is definitely a stretch for us, but it is a unique property in the area we want to be. It’s all done up and as such carried a premium but if I’m honest there are a lot of things about it I would like to change!!