Smaller home good/bad first step on the ladder?

ian1246

ReadySteadyPop said:

ian1246 said:

70 square metres for a 2 bed is pretty good sized tbh - I've seen a lot of 3 bed semi's at only 74/76 square metres and 2 beds as low as 50 square metres, so 70 square metres for a 2 bed is decent size.

I'd expect that 70 square metres translates to both bedrooms being well sized if the properties split 50/50 over ground floor / first floor - or alternatively a good sized downstairs/living space and more limited bedrooms? Either way, both would be good selling points & likely mean you can shift it in the future - provided the area's attractive and any other external factors are ok etc...

In your shoes, provided your jobs secure, I'd stretch as far as I can in the property I purchase, whilst keeping a small reserve of capital. 

Really not a good time to be doing that, for a multitude of reasons.

On the contrary, the gathering storm makes it even more sensible. By stretching as far as you can, you'll hopefully get a property which is future-proof for the medium term - 5 or 10 years time, by which point the OP may well have a family of his own and have other restrictions on his affordability to then be able to afford the costs of a move (Particularly if house price rises continue to outstrip inflationary rises)

The last thing anyone wants to be doing is forced to try and sell their now-too-small house at a time when the house market could be unstable or if they have significant financial commitments (I.e. childcare for children aged 1-4 / 5 years). 

Admittedly, inflation could yet spike back up and in turn push interest rates up - but the impact of that can be mitigated by a 5 or 10 year fix, by which point when the OP comes out of the fixed period, they should have experienced a significant pay uplift which could offset any future interest payments - i.e. assuming a 2.5% inflation rate, with pay rising by 2.5% to match this inflation every year, a £30,000 income now  (take home of £2014 after 5% auto-enrolment pension) would be £33,942 in 5 years time - a take home of £2237.47, an increase of £223.47 a month. The figures become even more compelling when looked at over a 10 year period i.e. £38,402, take home of £2490.22, an increase of £476.22

Worth noting by fixing over a 5 or 10 year fix, the remaining capital would be reduced by the end of the fixed period, so any subsequent interest rates hike would not be as substantial in actual £££.

Using the £30,000 salary example, you can borrow generally up to 4.5 times your salary - £135,000 mortgage on day 1, over a 25 year period. Assuming a 4.5% interest rate fixed for 5 years, by the end of the fix at year 5 the remaining mortgage is £119,000 - meaning even a 2% Interest rate Hike would only be equivalent to an extra £2380 a year (£198 a month). At the end of a 10 year fix, the remaining mortgage would be £98,000 - by which point even a 4% interest rate hike vs. currently, would only be equivalent to an extra £3920 (£326 extra a month). 

The above's also not factoring in any actual pay rises/increments the OP may receive, which if he's relatively young statistically he has a very high likelihood of his income being substantially higher in his 30's or 40's vs. his 20's.

Nor is it factoring in any future house-price rises, which if he ends up having to upscale in the future (due to buying a smaller property now) he will then be forced to "lock in" at.

By contrast, if he remains renting he is guaranteed to have annual rent increases every year.

Of course, the one big risk which he would face with buying a house is loosing his job and relying on Universal Credit which would only cover the interest amount on a mortgage (vs. most of a rents costs). 

Only the OP can know how likely that is, however its worth noting certain professions (Certain private sectors, parts of the public sector) have far less risk of redundancy vs. others - right up to some having absolutely zero legal possibility of redundancy (I.e. Police - they literally cannot be made redundant)

Herzlos

ReadySteadyPop said:

ian1246 said:

70 square metres for a 2 bed is pretty good sized tbh - I've seen a lot of 3 bed semi's at only 74/76 square metres and 2 beds as low as 50 square metres, so 70 square metres for a 2 bed is decent size.

I'd expect that 70 square metres translates to both bedrooms being well sized if the properties split 50/50 over ground floor / first floor - or alternatively a good sized downstairs/living space and more limited bedrooms? Either way, both would be good selling points & likely mean you can shift it in the future - provided the area's attractive and any other external factors are ok etc...

In your shoes, provided your jobs secure, I'd stretch as far as I can in the property I purchase, whilst keeping a small reserve of capital. 

Really not a good time to be doing that, for a multitude of reasons.

Can you explain the multitide of reasons?

jake_jones99

Albermarle said:

Does the 70M2 house have a decent garden, maybe with a shed? Driveway/parking ?
If you have some external space then it will feel less small.

I actually do have that in mind my neighbours built a conservatory or a loft room and this house doesn't have either but looks like it could. Not sure if I'd get all investment back though. 

A conservatory is a relatively cheap way to add floor space, but can be a hot in Summer/cold in Winter.
Plus they are not universally popular with buyers
So overall not a great financial investment, but many people still have them.

Loft rooms are surprisingly expensive to construct if you want a proper room/bedroom, rather than just an enhanced storage space. However in the right house they can add value.
However in a smaller house, you will have two issues. The room will not be very big, so the cost of building it will be high compared to the floor space you gain. 
Also it is better that a house is balanced between upstairs and downstairs. Three bedrooms will maybe seem too much, when the downstairs living space is only small.

It has two parallel driveways in front of the house. There's a 55sqm garden with a shed inside it.

jake_jones99

Albermarle said:

Does the 70M2 house have a decent garden, maybe with a shed? Driveway/parking ?
If you have some external space then it will feel less small.

I actually do have that in mind my neighbours built a conservatory or a loft room and this house doesn't have either but looks like it could. Not sure if I'd get all investment back though. 

A conservatory is a relatively cheap way to add floor space, but can be a hot in Summer/cold in Winter.
Plus they are not universally popular with buyers
So overall not a great financial investment, but many people still have them.

Loft rooms are surprisingly expensive to construct if you want a proper room/bedroom, rather than just an enhanced storage space. However in the right house they can add value.
However in a smaller house, you will have two issues. The room will not be very big, so the cost of building it will be high compared to the floor space you gain. 
Also it is better that a house is balanced between upstairs and downstairs. Three bedrooms will maybe seem too much, when the downstairs living space is only small.

I do have to specify it already has 3 beds. A double a single and something in between. 

jake_jones99

Just to add a new figure, with this 70sqm house I'll be paying 30% of my gross income towards the mortgage. If I were to upgrade to a larger (~95sqm) I'd be paying 37% of my gross income towards mortgage. I've read the rule is generally 28%. I could maybe afford 37% but I'm thinking the house will also come with additional expenses. What are your views on this?

poseidon1

jake_jones99 said:

Just to add a new figure, with this 70sqm house I'll be paying 30% of my gross income towards the mortgage. If I were to upgrade to a larger (~95sqm) I'd be paying 37% of my gross income towards mortgage. I've read the rule is generally 28%. I could maybe afford 37% but I'm thinking the house will also come with additional expenses. What are your views on this?

How does it compare in size with your current rental, larger or smaller?

I downsized from a 4 bed house to a 66 sq meter 1 bed flat.
Despite only actually using less than half the house previously, quickly realised it was a downsize too far. Currently looking to upsize again to a three bed flat in the 93 meters+ range.

jake_jones99

poseidon1 said:

jake_jones99 said:

Just to add a new figure, with this 70sqm house I'll be paying 30% of my gross income towards the mortgage. If I were to upgrade to a larger (~95sqm) I'd be paying 37% of my gross income towards mortgage. I've read the rule is generally 28%. I could maybe afford 37% but I'm thinking the house will also come with additional expenses. What are your views on this?

How does it compare in size with your current rental, larger or smaller?

I downsized from a 4 bed house to a 66 sq meter 1 bed flat.
Despite only actually using less than half the house previously, quickly realised it was a downsize too far. Currently looking to upsize again to a three bed flat in the 93 meters+ range.

I'm in a one-bed flat that is 43sqm gross internal area. The house I'm buying is 75 gross, so 74% larger. I don't have an issue with space in the current flat, it is a bit challenging to have people over, even though it was possible. So I feel for me the house will feel huge. The main reason I am moving is I want a newer place, fewer neighbours, private parking, and also a place to park my cash deposit that has been in banks for way too long. And also I would not like leasehold.

jake_jones99

poseidon1 said:

jake_jones99 said:

Just to add a new figure, with this 70sqm house I'll be paying 30% of my gross income towards the mortgage. If I were to upgrade to a larger (~95sqm) I'd be paying 37% of my gross income towards mortgage. I've read the rule is generally 28%. I could maybe afford 37% but I'm thinking the house will also come with additional expenses. What are your views on this?

How does it compare in size with your current rental, larger or smaller?

I downsized from a 4 bed house to a 66 sq meter 1 bed flat.
Despite only actually using less than half the house previously, quickly realised it was a downsize too far. Currently looking to upsize again to a three bed flat in the 93 meters+ range.

Did you live by yourself in all these places?

poseidon1

jake_jones99 said:

poseidon1 said:

jake_jones99 said:

Just to add a new figure, with this 70sqm house I'll be paying 30% of my gross income towards the mortgage. If I were to upgrade to a larger (~95sqm) I'd be paying 37% of my gross income towards mortgage. I've read the rule is generally 28%. I could maybe afford 37% but I'm thinking the house will also come with additional expenses. What are your views on this?

How does it compare in size with your current rental, larger or smaller?

I downsized from a 4 bed house to a 66 sq meter 1 bed flat.
Despite only actually using less than half the house previously, quickly realised it was a downsize too far. Currently looking to upsize again to a three bed flat in the 93 meters+ range.

Did you live by yourself in all these places?

Always lived by myself over the last 45 + years and in a variety of different purchased properties, so a lot more experience in determining what I feel comfortable in.

On paper your upsizing to your first house seems to make sense, but you really won't know until you take the plunge. 

Despite my age, my next purchase might still not be the last, but I have a tendency to get restless when in the same environment too long, so I am probably not the best yardstick for you to judge  your own likely desires and inclinations.

ReadySteadyPop

Herzlos said:

ReadySteadyPop said:

ian1246 said:

70 square metres for a 2 bed is pretty good sized tbh - I've seen a lot of 3 bed semi's at only 74/76 square metres and 2 beds as low as 50 square metres, so 70 square metres for a 2 bed is decent size.

I'd expect that 70 square metres translates to both bedrooms being well sized if the properties split 50/50 over ground floor / first floor - or alternatively a good sized downstairs/living space and more limited bedrooms? Either way, both would be good selling points & likely mean you can shift it in the future - provided the area's attractive and any other external factors are ok etc...

In your shoes, provided your jobs secure, I'd stretch as far as I can in the property I purchase, whilst keeping a small reserve of capital. 

Really not a good time to be doing that, for a multitude of reasons.

Can you explain the multitide of reasons?

Switch on Bloomberg news, they are going through them on a daily basis.