Potential house move and man maths

[minimods]

I'm posting this for advice and to see what opinions people have on my situation below. I would appreciate your help.

I'm in my early thirties and single. Four years ago I bought my first house, a humble one bed house but with a lot of positives (closer to work, driveway, big garden, etc). It fits my needs well at the moment. The mortgage is on a 4 year fix which is expiring soon.

I've been fortunate enough to increase my salary a bit over those years and I've been splitting disposable income between overpayments and savings. I'm now in the position whereby I can pay off the mortgage completely and still have a good 'emergency fund'.

I'm now in two minds about what to do:

1 - Pay off mortgage and stay in current house. Put away what I would spend on a mortgage into savings for the future.
2 - Increase the mortgage and move into a 3 bed in a better area with garage (one thing I miss after moving out of parents) and get a lodger in one of the spare rooms to help pay the increased mortgage.

I know I can make number 2 work financially (without over-stretching) although obviously the house will cost a lot more to run and the cost of the move wouldn't be insignificant. I feel the lodger would make it less like I'm rattling around a large house but wouldn't be required if I couldn't make it work. Although it might be a few years away I would like a family in the future.

Mortgage rates are low at the moment so the additional debt is cheap. On the flip side, without any debt I'm likely to be in a better position unless house prices increase significantly.

In the long term with option 1 it would be nice to buy a family home without having to sell my current house so I could rent it out. Possibly bad timing with the additional stamp duty and tax legislation changes?

Thanks for your help!

[MrChips]

We were in a similar position and chose to keep our first house and rent out (did this before the stamp duty changes though), and mortgaged ourselves up significantly to stretch for a bigger house. When I looked at the figures, if we just paid off our old mortgage, then the rate at which i could save was significantly below the price rises likely to be seen on larger houses (we based it on a very conservative % too i think).

So for us it was a case of using the low mortgage rates to stretch ourselves thin, fixed for 5 yrs, and are paying off as much as possible whilst rates are good.

It is still possible to make reasonable income even with the tax changes to offset mortgage interest, but in our case if we would have had to pay the additional duty then it would have swung the other way. If you're good with spreadsheets then just write out a few scenarios, including what would happen in a few years time if interest rates were at a much higher rate. If you got the bigger house and mortgage, could you pay off enough over the next 2-5 years to negate this risk?

Edited by MrChips on Saturday 20th May 00:02

[aspender]

One thing to consider is that if you buy a family sized home now, with the idea that you want a family in the future it is possible your future partner might not like the house / might not like the idea that it is your house / might have 100 other rational or irrational reasons why you'd end up buying something else together.

So you risk an unnecessary extra move and the costs incurred with it.

[anonymous-user]

Depends in part upon how much your place is worth and how much you're spending, but it often makes a lot more sense to live in one nice house tax free than to pay enhanced Stamp Duty on a second home, plus Income Tax on the rent, plus Capital Gains Tax when you sell.

[smckeown]

rockin said:

plusCapital Gains Tax when you sell.

j
Not on a main (and only) privately owned property.

My advice would be to buy a house now of you can genuinely afford it.