Use all my money towards a house or buy something more in my means?

bp5678

I don't own a property but will buy my first property hopefully in the next 12 months.

I have one part of me thinking to use every last bit of money I have towards a house and buying the most expensive one possible. This'll be in the region on £170k with a £50k deposit. From an investment/financial standpoint I would've got the most for my money without paying stamp duty but then I'll have a higher mortgage interest rate (and if the interest rises I'll be stretched... even if they don't rise I'll still be oweing a lot of money). Obviously a house is eventually an important investment/asset but with the mortgage it becomes a liability initially. It also means that if house prices rise (lets say by 3%) then 3% of £170k is far more than 3% would be if I got a house for £100k.

On the other side of the coin, buying a cheap house means I can get the mortgage paid off quicker and therefore less long term interest being paid towards it. I'll go from nothing to owning my own home much quicker.

Which is the better approach purely from a financial perspective? I appreciate I should actually want to live in the house!

Doozergirl

What does £170k buy and what does £100k buy? I suspect it's really quite different.

If £100k genuinely suits your needs in the medium to long term then it's worth considering.

You can get a long term fix on a mortgage rate to provide certainty on that front. Is your salary likely to rise over time?

If you can afford both then it really is about what serves you best. Selling up and buying a new house is an expensive and stressful project if you could have afforded something that suited your future earlier on, iyswim.

Moneyminded

Your last sentence hit the nail on the head. A property that is going to be your main residence is more important in terms of your lifestyle, what you need now and what you think will suit any future needs.
Thinking about buying a house from a purely financial perspective means you may end up buying something you hate living in.

If it was me I would go and view houses at the lower end of my budget first to see if they would meet my needs/ if I could actually live here. If there is something fundamentally lacking in them (that a bit of DIY couldn't fix) I would then up my budget a bit.

There is no need to spend all of your money on a house if you can find what you need for cheaper but there is also no point saving money by living in a place that will make you miserable.

What do you actually need? Is that available in your local area for significantly less than £170k, is this even an option? If it is then what do you get extra for a house at the top end of your budget compared with something more affordable? Are any extras things that are important to you and your lifestyle?

Finally it really depends on how long you plan on staying in the property. Are you thinking of this as your forever home? Are you buying on your own or with a partner? Will this be a family home? Are you planning to move for your career or other reasons in the future? The longer you intend to live in the home the more it has to be right for you. If you are just thinking short term then perhaps buying a house wouldn't be a smart move at this point.

FreeBear

Moneyminded wrote: »

There is no need to spend all of your money on a house if you can find what you need for cheaper but there is also no point saving money by living in a place that will make you miserable.

There is also wisdom in keeping some cash in hand to pay for those unexpected bills. What if the boiler breaks and can't be repaired ?
You'll need to be able to cover the cost of replacement - Taking out an unsecured loan would stretch your finances even further.