Smaller home good/bad first step on the ladder?

ReadySteadyPop

ian1246 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.

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)

This doesn`t really make sense, if there is a "gathering storm" the larger property will likely be cheaper in future, we don`t know about the OP`s employment as far as I am aware? The OP seems mainly concerned about increasing property value, and what type of property will "increase faster", you are describing how someone could think about being able to pay off the debt secured on their home, you don`t know what rent will do in future, everything is pointing to it being much harder for young mobile people to come to the UK, that doesn`t bode well for BTL, and most people won`t be comfortable with ten year fixes, what happens if there is a major crisis, rate cuts, and you lose your job? Also although "redundancy risk" is less likely in certain professions as you say, many jobs ARE wide open to redundancy risk and this affects the wider market meaning that in a crisis the OP would have bought at near peak prices, be locked into a 10 year fix at the historical average interest rate or thereabouts, and their house would also be losing value!

saajan_12

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?

You could try do a rough, back of the envelope calculation for this. 
* What's the difference in mortgage interest (not the payment) and in bills for say 5 years, which you save by starting in a smaller house? 
* What's the stamp duty and EA cost on having an extra move? 
* Rogue option: whats the rent for 5 years on a smaller house vs the total interest + sdlt + some amount for repairs by owning a house? 

Herzlos

ReadySteadyPop said:

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.

So you can't explain them?

ReadySteadyPop

Herzlos said:

ReadySteadyPop said:

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.

So you can't explain them?

As you know it isn`t the topic of this thread, lets just say that the UK isn`t in a good place economically and this could affect how much people pay for their debt.

Herzlos

So why are you posting it?

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?

 The main reason is that if the house falls in value you have lost the savings you used to "stretch", another reason is that if you borrowed more than you should because rates were still low at 4 to 5% then if rates rise you have more debt than ability to pay, this is happening now to the many people coming off historic fixed rate deals.

Herzlos

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?

So it sounds like you have 2 houses in mind now. Size aside is there much difference between them that'd impact your decision? Location, layout, etc. 

Which one do you actually prefer, looking at it as a place to live in now rather than futureproofing?

ReadySteadyPop

ReadySteadyPop said:

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?

 The main reason is that if the house falls in value you have lost the savings you used to "stretch", another reason is that if you borrowed more than you should because rates were still low at 4 to 5% then if rates rise you have more debt than ability to pay, this is happening now to the many people coming off historic fixed rate deals.

Both points I made dovetail into each other actually, don`t "stretch" as you should have all your savings intact for emergencies,  and don`t overpay, get the house as cheaply as possible, because you will have to make payments on the debt for some years to come if taking out a mortgage.

jake_jones99

Herzlos 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?

So it sounds like you have 2 houses in mind now. Size aside is there much difference between them that'd impact your decision? Location, layout, etc. 

Which one do you actually prefer, looking at it as a place to live in now rather than futureproofing?

Actually I have only one house in mind, the 70sqm one. I've viewed others around 90-100 sqm more expensive, some I've missed, some I didn't want because they were either too far or fewer facilities. This one seems to tick most boxes (i still need to plant some trees to shield the garden from one neighbour) but otherwise it seems okay and ready to move. If I have to choose something to live in now it would be this one. Would provide some minor future proofing e.g. I could have a partner move in for a while (currently single). 
So apart from size, it has several features:
- south facing garden 
- 3min walk to a shop and also to a bus with regular service to the center
- 3min walk to a nice big park
- the hallways of each of the two semi detached houses are central meaning there are almost no common room walls with my neighbour 
- relatively new built (~2006)
- two parallel driveways in front
- i spoke to all neighbours who didn't signal any issues

Herzlos

That sounds like a great house, so I certainly wouldn't wait around in case something better comes along. 

Plus, 70m^2 isn't exactly tiny. My first house was 50.