Cheaper property paid off quickly vs Higher value property increasing in value over time?

bp5678

I know your house you live in should be purchased based on wanting to live there rather than seeing it as an investment. However since it's such a big financial decision, I still want to think about it financially too.

One of my schools of thought is to get a house I can pay off quickly. The quicker I'm mortgage-free, the less money I'm paying towards interest on the mortgage.

However my other thought is if house prices rise by say 2% then 2% of a £200k house is greater than 2% of a £175k house. In addition, as a first time buyer I don't pay stamp duty up to £300k so it makes sense to take advantage of this by getting the most expensive house within my budget. I can also potentially rent out a spare bedroom to a lodger in this property.

Which would provide me with more money in the long run?

kazzamunga

I considered both these things when we were looking too, as they're both really valid. I think it comes down to whether you can see yourself in your career in the long term (i.e. the more expensive house won't become a burden to you), and really for us it just came down to finding a house we both loved - which happened to align more with your first idea. 

bp5678

kazzamunga said:

I considered both these things when we were looking too, as they're both really valid. I think it comes down to whether you can see yourself in your career in the long term (i.e. the more expensive house won't become a burden to you), and really for us it just came down to finding a house we both loved - which happened to align more with your first idea. 

If I'm honest I can't see my salary going up that much over the years. 

kazzamunga

No that's cool, but you're happy to stay doing what you're doing, to fund the expense of the more expensive house?

kdotdotdotdot

You also have to factor in the costs of buying a new house once you've sold the existing one.  If the one you own has increased over the years, so has the price of the next one you buy, so you may not make as much as you'd think.  Until you've paid off your mortgage, it's all notional anyway; expensive house or cheaper house, the money belongs to your bank, not you.  

kazzamunga

kdotdotdotdot said:

You also have to factor in the costs of buying a new house once you've sold the existing one.  If the one you own has increased over the years, so has the price of the next one you buy, so you may not make as much as you'd think.  Until you've paid off your mortgage, it's all notional anyway; expensive house or cheaper house, the money belongs to your bank, not you.  

You can pay off quite a lot in equity if you get the right mortgage term and make overpayments though? 

Amoux

I would say a cheaper house would make more financial sense, but not for the reason that you can overpay the mortgage or for a lower mortgage term as you suggested. It doesn't make much financial sense anyway to overpay your mortgage when interest rates are low. Borrowing has never been so cheap. 

The reason why I think a cheaper house would be more financially beneficial is because you will have much more disposal income. This disposable income could then be invested on the stock market which historically does better than property. So I personally would want as little property as possible to give more investment opportunities elsewhere. 

But at the end of the day, you have to be happy with your home and location, which in my case led to buying a much more expensive house!  

AdrianC

You haven't factored in the increased interest payments on a larger mortgage, the increased utilities and CT bills on a larger property, the increased maintenance and refurbishment costs of a larger property, or the lost returns from investing the money you haven't repaying the mortgage with in other sources.

Thrugelmir

Amoux said:

I would say a cheaper house would make more financial sense, but not for the reason that you can overpay the mortgage or for a lower mortgage term as you suggested. It doesn't make much financial sense anyway to overpay your mortgage when interest rates are low. Borrowing has never been so cheap. 

Make hay while the sun shines. Debt is debt. 

ReadingTim

Serious question, but what's the magic about having paid the mortgage off?  And I'm asking that as someone who paid off a 30 year mortgage in less than 10.  Sure, it's nice say "I've paid my mortgage off", and yes, it does mean I've got slightly less pressure if I lose my job...but I still have other bills to pay, and I still might lose my house if I don't pay them for long enough.  

So what's the magic - my life didn't miraculously improve afterwards, although I did go on some slightly nicer/more extravagant holidays.  In the end though, I ended up saving money - to buy a bigger/nicer house!  

lees80

I started with a slightly lower priced house but also ended up saving instead of paying the mortgage off. Used those savings to move to a bigger, more expensive house.

Not having a mortgage would be nice, but it's just not something that bothers me massively. We're both insured and have pensions that will cover the mortgage if anything happens to either of us.

For us, buying a more expensive house has led to a larger increase in value (after renovation). The old house was ex local authority and it sold at the ceiling price for the area. 

Swings and roundabouts really. If you can afford a nice quality of life without being stretched, I'd always go more expensive on the house. The value of our home now we've finished work means we can buy at a price that we could never get a mortgage for on salary alone.