Getting on the housing ladder is all very well, but if you start off your time as a home owner by purchasing a small property then you may well find yourself in a similar situation to first-time buyers if you later decide you wish to move to a larger home, for example in order to start a family.
While you will hopefully have built up equity in your property and may have seen it increase in value, all things being equal percentage increases in the price of smaller, more affordable, homes will still result in less net profit than percentage increases in the price of larger homes. For example, if a home originally cost £100K and increases in value by 1%, it will be worth £101K but a 1% increase in the value of a house which cost £200K will make it worth £202K and so on. This means that instead of the £100k difference in price there was initially, there is now a difference in price of £101K.
Even if you are planning to move to a different area, where homes are more affordable, you may still find yourself facing challenges. For example, if you wish to move from a small, city centre flat, to a family home in a commuter town, but still plan to keep the same job (or at least work in the city itself) then your mortgage affordability calculations will have to incorporate the fact that your travel costs will increase. You may still save money overall, but possibly not as much as it might initially seem from the house prices alone.
As is so often the case in life, there are no easy fixes to this situation, but here are some thoughts you might want to keep in mind when you’re moving into your first home.
Keep saving for your next deposit
Resist the temptation to think “job done” and relax your financial discipline. Yes, buying your first home is cause for celebration and, of course, life is for living, but if you have any plans to move on to a bigger home at some point in the future, for example, if you want to have children, then it’s a good idea to start preparing early.
Be careful what changes you make to your current home
The longer you plan to stay in a property, the longer you have to benefit from any changes you make to it. The less time you plan to stay in a property, the less time you have to benefit from any changes you make to it and therefore, from a purely financial perspective, the more confident you need to be that these changes will increase the value of your home sufficiently to justify making the up-front investment. Also, be very careful of making any change which it would be difficult for a new purchaser to reverse.
Do everything you can to maximise the sale price on your home when the time comes
This may seem like stating the obvious, but it does matter. In particular, do your research before deciding on an estate agent or estate agents and a conveyancer and once you have made your choice be ready to work with them to make your house as appealing as possible to potential buyers. Remember that every little increase in the sales price is a bit more money in your pocket, which can go towards your next home (or any other purpose you choose). Keep in mind, however, that you will usually have to pay standard selling charges out of the sales price (for example the fees for your estate agent and your conveyancer) so your net profit will typically be slightly less than the sales price minus the balance of your mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.