Buy a cheap home or wait to buy ‘forever’ home?

lilsweetie

Hi all

FTB here. Currently live in a house which I have the opportunity to buy, we would only need a mortgage for about £63k and I have worked out, if we paid the same amount as we currently do in rent after our deposit and HTB ISA help we could pay the house off in about 9 years, meaning we are mortgage free by 40!

This would be great really, but the house does need some work doing, at a guess about £20k it would cost to get it to where I would like.

The other option is a lovely house (quite newly built) but it is £75k dearer, if the house obviously never gave us problems we would stay there forever. We would need a 25 year mortgage and payments would be roughly the same as the first house.
The house I live in now, that I can buy, I do love it, and I could live here until it is paid off, however I’m not sure if it’s my ‘forever home’ if that makes sense. I think I would be tempted to sell it when it was paid off.

All I know is I am sick of renting.

Which option would you choose?

skint_chick

I would probably go for the forever home option, because if you need £20k for renovations for the first house and you don't have this saved you will need to take a small mortgage (£25k is usually the minimum) or a personal loan if you want to do the work before you've saved up.

Then if you decide to sell the cheaper house and buy a different one you'll have the costs of that - estate agents, stamp duty, solicitors, possibly at a point in your life where you have a family, or would rather work part-time, take some time off for travelling etc. All those costs add up so really the price difference on the more expensive house is less than £75k when you take the £20k plus moving costs into account.

A 25 year mortgage is reasonable for FTBs and as you move up the career ladder you can always pay extra off the mortgage, so it doesn't have to last for 25 years.

hazyjo

Forever house.

Although that's your terminology, not mine. Most people I know still have mortgages at 50 as you'll prob borrow against the house in years to come or move. When you're young, it's easy to think the house will have all you want forever. I bet you'll be looking to move again in ten years (Not everyone! My sis is still in the house they bought 25 years ago, but have borrowed against it for garden landscaping, loft conversion, and done many other jobs and improvements over the years.)

At the time it always seems a lot and you forget you'll have pay increases and property value will prob go up over the decades. My first flat over 25 years ago was only £60-odd grand which seemed extortionate lol. My last house sold for over half a mil. In 20 years' time it'll prob be selling for a million! Things may be static now, but it won't always be the case.

You can overpay a mortgage or reduce the term when you re-fix.

MovingForwards

Depends on how long it would be before being able to afford the forever home.

If it was a year of gentle saving, having a life etc then potentially wait.

If it's 2+ years of gentle saving etc I would debate buying the rental.

If it's hard saving, no fun etc for 2+ years I would buy the rental, save the excess money into the forever home account and just do the minimum to the rental. However, after being the owner you might change your mind and really love it and make it your own or change your mind and find a better forever home.

lilsweetie

Thanks all for your advice. We have been hard saving for a few years now so would rather start enjoying our lives more!! We have our children already so that wouldn’t be happening in the future.

The 20k to upgrade the property isn’t essential works, it’s just what I feel I would like to do to it to make it more nice for me cosmetically.
We could put away about £800 a month if we bought the rental so over the years that would help to buy a forever home.

When I sit and think, yes maybe my ‘forever home’ May not actually be in ten years time, I could decide I want more spacious as opposed to the ‘cosy’ I want right now.

The house I’m in right now is bigger but the other house is in a nicer area.

Am grateful for all your input.

lilsweetie

Oh and the work I would do to the rental I would do it bit by bit, not as a loan or on the mortgage, if it came to that I would rather go without.

PasturesNew

Go for the forever home if you've spotted it. That way you won't regret "wasting" any £1 you spend on the cheaper one. You won't spend years dreaming of the home you could've had every time something goes wrong or work is needed.

At £75k more, just do it.

steampowered

If the more expensive house will be worth more when (if?) you come to sell it, it is perfectly reasonable to pay a bit more to get it now.

It sounds like you are in a very comfortable position financially and that the mortgage would be affordable so I see no reason not to go for it.

By the way, paying off your mortgage as soon as possible so that you are "mortgage free" is, in financial terms, a mistake for most people. It is generally much more tax efficient and generates better investment returns to make higher pension contributions and stocks & share ISA contributions, especially if you are a higher rate taxpayer. Make sure you balance mortgage overpayments with other long term financial priorities.

Zero_Sum

If the mortgage on the more expensive home is affordable then go for it

AnotherJoe

steampowered wrote: »

By the way, paying off your mortgage as soon as possible so that you are "mortgage free" is, in financial terms, a mistake for most people. It is generally much more tax efficient and generates better investment returns to make higher pension contributions and stocks & share ISA contributions, especially if you are a higher rate taxpayer. Make sure you balance mortgage overpayments with other long term financial priorities.

^^^^^^^ This. Saved me typing pretty much the same.

There's a lot of people in the MFW forum unknowingly losing a lot of money as they high five each other over every tenners overpayment.