Should we downsize to bet against Cost of Living?

CMB93

Just looking for your thoughts on our current predicament! 

My husband and I have a house worth around £370k, with £238k mortgaged. 

We've seen a property that we love, same amount of living space and number of bedrooms, but the bedrooms are smaller, for £250k in the next village over. 

Would you think it sensible to downsize in the current market, with our first child on the way, to be able to reduce our mortgage borrowing by £108k, have a LTV of 52% and able to port our 1.59% mortgage deal for the next three years. 

If we stay where we are and the mortgage products stay the same as they are just now, we'd be able to pay our mortgage and bills when our fixed rate is up, but with much less disposable income (i.e. an extra £800 p/m) with less money left for life. If we move to the smaller property, we'd be able to ride out the interest rates better (and it's much more energy efficient). However, current home is in a very high demand area, so any value increase over time will be much more here than the new house. 

I know there's no right answer - but I can see so many pros and cons to both arguments I'm just wondering what people with an outside perspective might think?

lookstraightahead

Firstly, it's best to buy a house to live in rather than seeing it as something where you may or may not make or lose money (although obviously it needs taking into consideration).

secondly, I'm not sure what you mean by riding out interest rates, the current rate is fairly 'normal'.

thirdly, do you 'need' the extra money for essentials (and will not having it put you in debt), or are you going to spend (or maybe waste) it on things you don't need.

Fourthly (is this even a word?), can you stay in your current house very long term where house prices will go up over time and then can naturally be an investment, even if it's difficult now?

you also have to take cost of selling and buying into consideration.

Also everyone is saying their areas are in high demand but that can't be the case everywhere, and can change.

I have no answers, just some points to ponder.

CMB93

Thanks @lookstraightahead. 

To answer a couple of your points to see if they change any of your suggested talking points.

The extra money would go on value of life spending, i.e. being able to do have a good social life, paying for extra classes for the kids in a couple of years. Might not be deemed essential to everyone but will indeed make life happier. 

Yes - both houses could be for long term, although current house perhaps more so with more options to extend if needed. 

We have taken cost of selling and buying into consideration, and if both go for what we expect we'd expected to be able to pay off the £108k sub-account of the mortgage after all fees and still have a small chunk of cash. 

Current house really is in the most desirable street in the town we're in - but one of the smaller houses. It's not a new build estate that will go through a desirable period, it's all old period properties that rarely become available. It's right next to the main park, no overlooking houses front or back, no chance of development front or back etc. I am confident it will stay as the most desirable street in the town for a long time to come. We've had people express interest in buying without the house being on market. 

saajan_12

CMB93 said:

Just looking for your thoughts on our current predicament! 

My husband and I have a house worth around £370k, with £238k mortgaged. 

We've seen a property that we love, same amount of living space and number of bedrooms, but the bedrooms are smaller, for £250k in the next village over. 

Would you think it sensible to downsize in the current market, with our first child on the way, to be able to reduce our mortgage borrowing by £108k, have a LTV of 52% and able to port our 1.59% mortgage deal for the next three years. - are you sure you'll be able to pay off £120k without ERCs? Usually you can only overpay ~10%. The LTV would also be too high to keep at the 238k mortgage for the next 3 years (95.2%) on a 250k house. Price in any ERCs into your calculations, on top of moving costs, solicitors, agents, etc. 

If we stay where we are and the mortgage products stay the same as they are just now, we'd be able to pay our mortgage and bills when our fixed rate is up, but with much less disposable income (i.e. an extra £800 p/m) with less money left for life. If we move to the smaller property, we'd be able to ride out the interest rates better (and it's much more energy efficient). - very personal question on whether the 'money for life' is more important to you than the space. Any plans to grow the family, and what space would you need for that (not just while they are babies, but also as they grow)
However, current home is in a very high demand area, so any value increase over time will be much more here than the new house. - well its high demand now, meaning you'll get a high sale price whether now or in the future. Do you particularly think it'll also get more in demand relative to the broader market in a few years? Usually notunless you know something others dont.. 

I know there's no right answer - but I can see so many pros and cons to both arguments I'm just wondering what people with an outside perspective might think?

Comments in line.
Once you price in moving costs, ERCs, etc, it might take a long time before the savings pay off. Also where do you see yourself in the longer term.. no point downsizing only to upsize again shortly thereafter. In terms of price increases, you could realise a lot of that gain now, no real way of telling whether the relative demand now will increase or decrease. 
Financials aside, would you value the 'money for life' more or the space? 

steampowered

If you can afford your current property, you should stay put.

The reason why interest rates are high is because inflation is high.

When inflation is high, that generally means rising asset prices (such as asset prices). Downsizing to a smaller property would also mean you don't gain as much from that. 

Flugelhorn

just check why the property is on for rather less - you are having a child, check the school catchments - check the planning etc etc 

Stenwold

CMB93 said:

Thanks @lookstraightahead. 

To answer a couple of your points to see if they change any of your suggested talking points.

The extra money would go on value of life spending, i.e. being able to do have a good social life, paying for extra classes for the kids in a couple of years. Might not be deemed essential to everyone but will indeed make life happier. 

Yes - both houses could be for long term, although current house perhaps more so with more options to extend if needed. 

We have taken cost of selling and buying into consideration, and if both go for what we expect we'd expected to be able to pay off the £108k sub-account of the mortgage after all fees and still have a small chunk of cash. 

Current house really is in the most desirable street in the town we're in - but one of the smaller houses. It's not a new build estate that will go through a desirable period, it's all old period properties that rarely become available. It's right next to the main park, no overlooking houses front or back, no chance of development front or back etc. I am confident it will stay as the most desirable street in the town for a long time to come. We've had people express interest in buying without the house being on market. 

Ignoring the monetary side of things for a minute - they way you described your current property, it sounds like a real gem. 

In a couple of years time do you think it's possible you'll back and regret selling such a desirable property? From what you've said, you may not get the chance to move back to the same street.

womble12345

You will appreciate that nearby park when you want to take the new baby out to get them in a buggy to get them to sleep, I spent hours walking my kids to sleep! I would stay put.

propertyhunter

I would stay put. Your life is going to change a lot with the arrival of your first child, and then your priorities change massively. What you think is important today in a house might not be in a couple of years. Plus, it sounds as if you're a younger couple - and the potential for promotions/salary increases is higher, so you could ride out increased costs more than you think. 

CMB93

Thank you everyone - we have a 2nd viewing at the property tomorrow evening but I’m now swaying more towards staying. Short term benefits would be great, but I do think we’d regret the downsize in the future. 

GixerKate

Putting aside the possible savings, do you really want to move out of your current house? It sounds lovely and would you regret it in a few years time? I've moved when pregnant and I really wouldn't recommend it and if your family is growing you will want the extra space.

I suppose its how much you value maintaining a busy social life, assuming it continues with a baby (personally I was happy having sleep and the last thing I wanted to do was to go out).