Should we stretch ourselves now fo long term gain?

Burchell27

Hi all,
I’m new to the forums and looking to some members who may have been in the same scenario as me for advice.

My wife and I are looking at moving to a 4 bed house in the Swindon area. We currently own a 2 bed terraced (first home) recently valued at £180k (89k left on mortgage). We have been offered a mortgage up to £270k (1.9% 5 year fixed) which would just be enough to purchase some of the houses we are looking at. The 4 beds we’re looking at are between 340-380ish.

My question is, is it more beneficial to stretch ourselves now and hopefully reap the long term rewards, or play it safer by taking a smaller mortgage and look at 3 beds instead?

The monthly running costs will be roughly £1500 per month(includes mortgage) which seems a little scary, if just about manageable.

We are 27 & 28 years old and have a joint income of £54k. Hopefully going up in coming years.

Would be interested to hear others experiences and opinions on taking on a large mortgage and weather it was the right choice.

Craig1981

morning and welcome

i would usually take caution when "stretching" finances and i look at worst case scenario before doing so as follows:

will you be able to cover mortgage repayments if one of you get made redundant?
planning to have children? what type of maternity pay and have you gone through costs of raising a child? if not planning on having children (or more children), is a 4 bed really necessary?

as you are still young, IMO, i would take the 3 bed option instead - then the difference in the monthly mortgage between a 3 and 4 bed, either put away in savings or overpay the mortgage. 5 to 10 years time, you will then not have to stretch to get the 4 bed you want

on a side note, your joint income is around £3600 net a month? after costs of £1500, this leaves you with £1900 for other bills and expenses... for two of you that is quite a bit, so unsure why the prospect is "scary"

again, only my opinion

stueyhants

It depends on your risk appetite, my personal feeling is I would risk it but that’s because the cost of moving twice with stamp duty, estate fees would just annoy me. Would the 4 bedroom house be your forever house ?

Burchell27

We haven’t got any children yet, but would like 2 kids in near future, hence looking at bigger houses.
I guess the costs just seem scary in relation to what we pay now.

Stueyhants yes we plan to be there for the next 10-15 years. We would only move if our wages went up a lot or we had a windfall of cash.

The stamp duty was one of the reasons we wanted a 4 bed. For a 360k home it will cost 8k stamp duty.

KazJenn

What about the compromise of going for the 3 bed that has excellent potential to extend later down the line? As you’re thinking of kids. Do some research on catchment areas first and where the established, family friendly estates are. In the next 5 yrs you could focus on lowering your mortgage payments / preparing for children and then when you’re financially comfortable and settled go about getting an extension.

AlexMac

My view is yes; go to your limit, as buying a house that you like to live in is not only great for quality of life, but an effective, tax free and "enforced" savings scheme. (Enforced because once you commit, you have to fnd the money to pay the mortgage etc, whereas conventional savings can go out of the window if other temptatio s arise!)

OK, you won't benefit from the silly, extreme levels of inflation of the latter part of the 20th Century and Noughties (ignoring the crashes and falls of 1987 and 2007/8 which mostly recovered in 3-5 years) but long term, you'll see great gains.

In our own experience, we see this by looking around our friends, none of whom were rich or very high earners, and most of whom started with similar modest first buys 40 or more years ago. We can see real differences; some now sitting on a million quid or more's worth of equity (We are in London and the SE), others on well less than half that depending on the choices they made. And the option to downsize if you really need cash.

Lots of variables; health, job security, the possibility of relationship breakdown or divorce... So the rule isn't a golden one... but i know what I'd do, again, if i was 50 years younger!

bouicca21

I'd take the risk, especially given your ages. There's plenty of wriggle room in your budget, you could even put money away or overpay.

worried_jim

Yes. Buy the biggest house you can afford. It may be a struggle at first but you'll manage and overtime the mortgage amount will decrease and overtime the property value will increase and one day it will be comfortably affordable as you move up your career and pay scale.

comeandgo

I'd also say go for as big a house as you can get. I'd advise you to take out decent insurance that pays the mortgage if you are injured and cant work. Protect your income.

Sanne

In your situation I’d say yes, go for the bigger one now assuming you can afford the payments during maternity leave.

We went opposite despite what I’m saying - could have gone for a house (FTB) up to around £375k or possibly even a bit higher but “only” bought one at £310k with a household income of approx £70k with good potential to rise. Main reason for me not to go for the max is wanting to have the mortgage paid off by the time my husband retires (he is 13 years older than me), even though I have the significantly higher income. Got about 20 years for that though went for a longer term mortgage and plan to overpay as our difference in income is also quite a risk. We also won’t have children so don’t need bigger - would have liked a semi but settled for a terraced in a really nice area instead. (Still not planning on moving again!)

Bottom line is I think there are various factors but if hubby was younger I would have gone for more expensive.

geeovana

We are in a similar position currently looking for our second home. I think you should remember and consider that the amount you borrow is significantly less than the amount you end up paying back. We have a current combined salary just north of 90K and we are looking at below the 300K mark.

Are you sure you can even borrow that much?

With interest rates only going up from here over the coming years you should factor this in as well as can you afford the house on a single salary.

As much as previous replies have said it will be good for quality of life to borrow the maximum your allowed, how will you cope if the so called 'property bubble' carries on slowly bursting meaning your house is potentially worth less than when you bought it, one of you loses your jobs whilst interest rates are rising??