Cautious FTB in my 50s. Should I go for more expensive house? Need pros and cons.

PirateSwan

I am 53 and have just had an offer accepted on a very tiny house with a few issues (tenant being chucked out, only access is via a dark alleyway). The place is 150k or thereabouts and would cost me 489 to repay, per month, on a 13 year mortgage. There’s not much around in my budget where I live and I am getting a bit desperate as my repayment window is getting smaller by the day.

I have just seen a much bigger place for 20k more, that, according to the mortgage calculator, would only cost me £100 more per month in repayments. If needs must I’d be OK getting a lodger in to chip in for costs.

My issue is that I am very very cautious, possibly over cautious, and am scared about for the current inflationary environment causing interest rate rises and what they would do to the repayments.

Does anyone know – in general – how much interest rates historically have increased by, in the UK, in this type of environment, and what this would do to mortgage repayments? For example, would they be likely to double (maybe this has happened in the past or is this Weimar republic scenario a bit far fetched?). I am not good with numbers so would really appreciate any input.

I know no one can predict the future so would appreciate any generalised input, outlining the pros and cons of extending my budget, and whether it is a frivolous or sensible, considering the personal safety issues surrounding the small house I offered on.

Thanks for any input.

FreeBear

If you do a search for "historical interest rates UK", you'll turn up plenty of charts & graphs going back to the 1970s. In the last 20 years, the BoE base rate has been under 5%, and the last 10, under 1% - Rates that low can not last, but when, and by how much they go up is impossible say. That said, I doubt we will see the 15%+ rates like we did in the 70s.

In your shoes, I'd go for the larger property and get a lodger in to help with the bills - I've had one for the last 3 years, and it has been a rewarding experience for both of us.

comeandgo

I’d go for the biggest place I could find and afford and put in lodgers until I could afford it on my own.  Historically interest rates have been over 12% but if you can fix your rate for 5 years then you will know exactly what you have to pay for that period.

theoretica

The first thing to remember is that this is some place you will be living.  Would you rather live in a bigger place, not down a dark alley way maybe with a lodger?  I probably would. 

A key, for me, is to insulate yourself from future interest rate rises - if you can build up overpayments then higher interest rates will have less effect.  If you charge a lodger more than £100 a month (which seems likely, going by room prices in areas I know) that would give you extra to overpay and so you probably wouldn't need a lodger the whole time.

Reginald74

I would agree: go as big as possible. It all dwindled over time.

And for what it's worth: fair play to you for taking this step. You won't regret it.

Thrugelmir

Buy a home you want to live in. Moving is an expensive business. Presume you currently plan to live there into your retirement years. 

Stubod

..for me it would be a no brainer, just buy the bigger place...your future self will thank you...

bramptonbrew

If you buy the smaller place, are you likely to wish you'd gone for the bigger one? I'd say it's worth pursuing the bigger one personally - more space is always better, and sounds like better access too. At least go for a viewing if you haven't already.

MrsBrush

In your position, the best advice would be to buy the property you can see yourself still living in when you are 75. I would personally go with a bigger property, so you can rent a room out if you need to, and will as you get older better access will allow you to future-proof as well. Think about how long you intend to stay in the property, as if it is a long term move, you need to make sure that the property will work for you in the long term as well as now. Go and take a look at the bigger property, you will have a good comparison between the two and be better placed to make that decision.

You don't want to have to go through this process too often, as it is stress city!

Agree with the other posters - get certainty on your mortgage payments by setting up a longer term fixed rate (5 years probably optimal, unless a 10 year deal is coming out as a longer term good value proposition - but watch out for redemption penalties if you intend to move in the fixed term period). Also, overpay as much as you can from the outset, so that the overall debt is reducing over time. Even a £20 monthly overpayment will make a difference, surprisingly. Whilst this is a scary prospect, particularly if you are a more cautious type, having that long term commitment to a mortgage and a property can seem daunting. But, when you weigh this up against rising costs of renting, less availability of suitable rental properties and then making sure you can pay for a rental in retirement, the notion of having paid off a mortgage and owning your own home makes far more sense.

PirateSwan

Thanks so much for your input everyone. It's really given me food for thought and given me a new perspective on my situation. Best wishes

greensalad

Bear in mind that some mortgages may not allow a lodger