Can I afford to buy a bigger house?

Many of us reach the stage when the home we fell in love with years ago no longer suits our needs. Perhaps your family has grown and you need the extra space, or you’re simply looking for that missing ‘wow’ factor.

Before you take the plunge, it’s important to think about whether you can afford to buy a bigger place, and the impact it could have on your finances more broadly. To help you get started, these are some questions to ask yourself.

1. What are the upfront costs?

The first thing to bear in mind is that the more expensive the property is, the higher the initial costs will be. This is especially the case when it comes to tax. Stamp duty in England and Northern Ireland ranges from £5,000 for a £300,000 property, to £20,000 for a £600,000 property, to £43,750 for a £1m property¹. These amounts will be higher if you’re buying an additional property or second home. You’ll pay land and buildings transaction tax if you’re buying a property in Scotland, or land transaction tax in Wales.

Other upfront costs to consider include estate agent, legal and removal company fees. You might find it useful to add up all these costs well in advance. That way, you’ll avoid any nasty surprises further down the road.

2. How much will it cost per month?

Unless you plan to put a significant deposit towards your new home, a more expensive house will typically mean higher mortgage repayments. This might not be the case if you’re able to get a lower mortgage rate than you’re currently on. There are several online mortgage repayment calculators which will illustrate how much your repayments are likely to be.

Bigger properties could come with higher heating, electricity and maintenance bills, although this will depend on a range of factors, such as its state of repair and energy efficiency. It’s also worth checking the property’s council tax band, as this may also be higher. You can find this out on the government’s website.

Again, adding up all these costs will help you decide whether moving up the property ladder is affordable, and that you’re comfortable with any additional monthly outgoings.

3. How could my broader finances be affected?

It’s important to consider the impact that buying a more expensive property could have on your overall financial situation. Higher mortgage repayments might mean you can’t afford to save and invest as much money each month, while large upfront costs could use up a substantial portion of your existing savings. This could derail your other financial goals, whether that’s saving for retirement or your children’s education fees.

A financial adviser can give you a clear picture of your future finances and the impact of buying a bigger property versus staying put. You can essentially ‘rehearse’ different scenarios. Of course, money won’t be the only factor in your decision to move home, but you’ll at least have a full understanding of the financial implications. And if your heart is set on moving up the property ladder, your adviser can explain which savings pot to use to fund the upfront costs, as well as the steps you could take to ensure your other goals remain on track.

4. Could I save up to fund the extra costs?

If you can’t afford the property you want right now, think about the steps you could take to be able to afford it in the future. Cutting back on non-essential expenditure, for example, could free up extra cash to put towards a deposit or stamp duty in a few years’ time. A financial adviser can help you create a savings plan that sets out how much you need to save each month and for how long.

If you decide to push back your purchase until later, then you may wish to consider investing some of your savings in the stock market. This will give your money the opportunity to grow over the long term, potentially helping you reach your goal more quickly. Returns aren’t guaranteed as the stock market goes down as well as up, but history shows that over ten or more years it tends to perform more strongly than cash.

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Next steps

After buying your first home, moving up the property ladder could be one of the biggest financial decisions you make. It’s exciting, but the costs involved can be unnerving. A financial adviser will help you understand the impact on your overall finances, so that whatever decision you make, it’s the right one for you. For smart advice that’s tailored to your individual circumstances, speak to one of our financial advisers today.

The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.