First Time Buyer - To Stretch or not to Stretch?

Chriswestsussex

So having been long term renters for 10yrs or so we have built up around a 100k deposit for our first house.

Question is...should I look to stretch myself for a dream house at around the 575k mark (not a large house but one in a really nice location near to countryside walks, etc) given we are in late thirties with stable jobs with salaries of around 100k combined, or plump for a more affordable but less of a 'dream' house in a less desirable area?

Ordinarily I would have immediately gone risk averse and plumped for more affordable in lesser area, however I'm expecting about 200k in inheritance in the next year or two...so plan would be to would fix rate for 5 years, remortgage at this point clearing that inheritance off the outstanding then move to a nearer 40-50% LTV mortgage. Aim would be to keep up with the relatively high but affordable monthly mortgage payments overpaying or saving and then depositing in lump sums when each fixed rate term finishes and remortgaging at that point...having done some sums I reckon it would be paid off in 14 years...

Or is this pie in the sky sort of stuff and loading up so high to start off is the road to ruin?...Better to be safer in a turbulent financial climate but in a house you love less with less of an investment value? Or go for it given how quickly it could be cleared off?

ReadingTim

I wouldn't bank on the inheritance if it's a house sale from an elderly relative who's in the twilight of their years as care home fees could swallow up some/all of that between now and when they do finally shuffle off this mortal coil.  

Instead, I'd be thinking of things like how likely it is that your salaries will increase significantly as your careers progress, or whether you're reaching peak earning potential in whatever it is you do.  I'd also be thinking about other like plans such as starting a family, as children aren't cheap...

Mark_d

Stretching yourself would cost a lot in stamp duty, you'd pay a higher interest rate because of a lighter LTV...I would rule out the dream house now.

So you options are to make a safe and comfortable house purchase in the 'less desirable area', or continue renting for the next two years.  I can't make the decision for you but if it was me, I'd go for the more affordable option.  As your mortgage commitment would be lower, you could put any surplus income into pension and ISAs, so that you'd have plenty of benefit in the long run

RHemmings

Being risk-averse, I would go for the more affordable option. Can you still find a house you are happy with in an area that you like and is convenient? 

Bigphil1474

Personally, I'd say sod it and go for the dream. You only live once. As long as it's realistic financially, it's not like putting all your money on black. If a £100k deposit with £475k mortgage is affordable for you, irrespective of what happens with the inheritance, and you can still enjoy life a bit then I wouldn't hesitate. Bear in mind, if you can afford the mortgage okay at month one, on a 5 year fix (if nothing else changes), you should comfortably be able to afford it at month 15, month 30, and month 55. After the fix, even if the inheritance hasn't come in, mortgage rates are more likely (caveat) to be lower than they are now based on the last 25 years. Why buy a house you aren't keen on, in an area you don't really like? 
(Obviously all this depends on what your other half thinks anyway)

BonaDea

I think it depends on the extent of the stretch, and the calculations should be made without taking the inheritance into account.  If it would be a very big stretch, and your incapability or unwillingness to make sacrifices in other outgoings is high, then go for the affordable option.  But if it's not a huge stretch, and you are very adaptable, then go for the preferred option.  Once in, you'll make it work!  

Chickereeeee

If you plan to travel a lot, and the house is just a place to be in between times, then the cheaper house.

If you plan to make the house your base and for it to be a substantial part of your life now and in the future - go for the more expensive one. Also, remember - location is the most important factor.

DrSpendingLittle

I understand the dilemma, I've been there myself. As an example of how things can change - we very nearly did push ourselves to buy our dream house in 2019 at 74% LTV but the sale fell though and I thank my lucky stars daily that it did as we'd be looking at remortgaging now, having been on a 5 year fix at 1.64%. Whilst we earn more now, we also now have childcare costs at £1000 per month. It would have been very tight financially for us. We also now have different financial goals than we did 5 years ago which means we no longer want a big mortgage payment. 

We're currently in the process of buying (not FTB's) and so I too have been through what you're considering. We've decided to buy less house and put a bigger deposit down at 60% LTV to secure the best interest rate possible to produce a monthly mortgage payment that is no bigger than 27% of our take home pay. Any pay rises will be used to feed our other financial goals, as will the spare ££s when LO finishes nursery. 

Re: the inheritance, we are in a very similar position. We have decided to ignore it for now and make our purchasing decision on our current incomes only. The inheritance when it comes will be used to fulfil our medium to longer term financial goals (i.e. early retirement, little one's education, big house improvement projects etc). 

As the above posters say, it's difficult to advise without a fuller picture of your financials. The most important to consider when you're doing the budget for a new home are:

- Do you have / intend to have kids? they're expensive to run! 
- Do you contribute a decent amount into your pensions already and if so, can you continue to do so?
- Do you have a fully funded emergency fund of 3-6 months expenses that would still exist after the house purchase? 
- How would you fund purchase / moving costs? Could you avoid dipping into deposit savings? 
- Ditto for stamp duty... 
- Would you have enough money set aside after the move for set up costs i.e. curtains, white goods, garden furniture etc 
- Do you have any consumer debt? Are you comfortable resisting the temptation of using credit for lifestyle creep that buying house can trigger?
- Do you own / drive cars and can you foresee any big expenses / purchasing requirements in the coming 5 years that might test your budget?   

I would always advising buying less house as a FTB - you need to get used to the true running costs of owing a home. And, you want to enjoy your daily life in your first home that you have worked so hard to save for. You don't want to be penny pinching and stressing about the costs of broken gutters, a broken boiler, a missing roof tile or a burst pipe. Or all 4 plus a massive dental bill and a failed MOT.   

To help you decide, I'd recommend creating a zero based monthly budget for the dream house, accounting for all fixed expenses (council tax, utilities, bills etc), fluid monthly expenses (groceries, commuting etc), yearly savings pots (car maintenance, house maintenance, savings, holidays, gifts etc) and then play around with different monthly mortgage payments and see how much you have left over each month for discretionary spending i.e. your fun money. That will give you a truer picture of whether you can afford it vis-a-vis your lifestyle expectations.    

Good luck with whatever you decide! 

Chriswestsussex

Thanks everyone, lots of great advice to mull over. 

Albermarle

.Better to be safer in a turbulent financial climate 

I would not take this into account as we are not ( currently anyway) in a turbulent financial climate.

Inflation is back around its 2% target.
Interest rates are similar to their long term average.
Pound is steady for a long time now.
Stock markets have been in positive territory for about a year.
Unemployment is low.
Economy is predicted to grow ( slowly)
Stable political situation in UK 

I am not saying it is a bed of roses, especially with spending cuts and higher taxes on the way, but turbulent it certainly is not.

silvercar

I would go for it. If you buy something you start to dislike, you will move again in a few years and moving costs money. Another lot of stamp duty plus costs. Add in the hassle factor and it’s a headache I would avoid.