More expensive house + save less in OR cheaper house + save more - which is better long term?

BigBoss

My partner and I are in the market for a house atm and we're deciding between the two options as per the thread title. I was doing some calculations today and it seemed that buying a cheaper house and saving more yielded more money over the 5 years that I calculated. I didn't include any property value increases (which are obviously going to be important) losses from paying interest - so it was a pretty basic set of assumptions. Assume 15% deposit on the expensive house and 20% on the cheaper house.

eskbanker

Not sure which assumptions you have included, but ignoring mortgage costs and growth in property value seem odd omissions, so the value of the exercise is questionable if the calculation is flawed.  If you share more detail of how you reached your conclusion then posters may be able to offer ideas about how to achieve a more balanced comparison?

zagfles

A house to live in or rent out? If to live in, and you don't assume property prices will rise (IMO more likely to fall in the current climate), then it's obvious that buying a cheaper house will be financially better. Unless the more expensive house is smaller, or better insulated, or has more efficient heating etc as that's going to make a big difference this winter.

born_again

Mortgage rate is always going to be higher than savings rates.

There are many factors to think about. Energy, maintenance, council tax etc. As alluded to by @eskbanker

Rather than look on it from a money making point of view. Look at it from which would you rather live in & not have to move. Either bigger or smaller going forward. 

plumb1_2

Are you buying an investment or a home ?

InvesterJones

Depends what your end game is. Generally a house you live in is an illiquid asset, ie you can't do much with the value, so you'd need to move out to a cheaper house to do something with any gain in value, if so, it's just a numbers game between house price increases and investment increases that you would otherwise put your savings in. If you're not planning to move out then obviously having more in savings with which you can invest will look better from a liquid assets points of view.

But 'better' might be about more than just a number on a returns sheet...

Novice_investor101

Buy the house you want to live in & know you’ll be happy in. If you can afford it, go with the one that feels right. 

Yorkshire_Pud

Buy the house you can afford to pay the electric and gas prices the most affordably.

phillw

InvesterJones said:

ie you can't do much with the value, so you'd need to move out to a cheaper house to do something with any gain in value, 

If house prices are going to go up faster than where you invest your spare cash, then the gain in value will help with any house move. Not just downsizing.

The value of your house is only irrelevant if you are guaranteed to never ever move under any circumstances and don't care what happens when you die.

baldeagle09

It is not an immutable fact that house prices will continue to rise over time.
There are many economic indicators that determine house prices including state of the economy, interest rates, availability of mortgages, speculative demand, supply of housing etc.
My forecast is that house prices will be lower in a year's time. My guess would be 5 to 10% lower, but it is only a guess, a gut feeling if you like. 

clearancer

baldeagle09 said:

It is not an immutable fact that house prices will continue to rise over time.
There are many economic indicators that determine house prices including state of the economy, interest rates, availability of mortgages, speculative demand, supply of housing etc.
My forecast is that house prices will be lower in a year's time. My guess would be 5 to 10% lower, but it is only a guess, a gut feeling if you like. 

Rubbish! There will always be areas where house prices rise (trendy, transport, great schools, beautiful location). Equally, even in times of boom, some locations will stagnate. Homes are not always about the investment.