Should we buy a one-bedroom apartment to keep mortgage costs down or opt for a two-bedroom apartment and take on a subtenant?

We have saved a deposit to buy our first property, but with mortgage interest rates higher than expected we expect the monthly payments for the first few years may be a bit financially excessive.

From our perspective, we have two options: either downgrade from the two-bedroom apartment we originally wanted to a one-bedroom apartment with the intention of moving to a larger property in a few years, or buy a two-bedroom apartment -room apartment Take on a subtenant in the first few years to pay off the mortgage.

What would this mean for our mortgage application? Do we need to tell the lender that we plan to rent out a room and would this income be taken into account in our affordability calculation? And how about taxes? By email.

How many bedrooms do you need? With higher mortgage costs, some aspiring homeowners are compromising and opting for a cheaper, smaller home to get on the career ladder

Ed Magnus from This is Money responds: There will undoubtedly be first-time buyers across the country who will face a similar dilemma when it comes to mortgage rates.

According to real estate agent Hamptons, there are already signs that buyers are making compromises and buying smaller homes than they would have otherwise.

Earlier this summer, it was reported that one- and two-bedroom homes were selling faster than three-bedroom homes for the first time since 2010.

It was also found that one- and two-bedroom properties experienced the smallest year-on-year declines between asking price and selling price.

Larger homes, on the other hand, are subject to greater affordability pressure.

According to Moneyfacts, the average fixed rate for two-year mortgages is now 6.66 percent, up from 2.38 percent two years ago.

New era: After more than a decade of relatively low and stable mortgage rates, borrowers are facing a harsh new reality that will add hundreds of pounds to their monthly costs

This means the average person who takes out a £200,000 mortgage and repays it over a 25-year term will spend £1,370 a month, compared to £885.

You pointed out that a tenant could help you cover excess mortgage costs.

The Rent a Room scheme allows homeowners to earn up to £7,500 tax-free each year by renting out a room in their property, provided it is their main home and they continue to live there.

The tax exemption is automatic if you earn less than £7,500. This means you don’t have to fill out a tax return if you earn less.

Any person who earns more than £7,500 from a lodger in a given tax year must file a tax return and declare that they are entitled to the allowance.

The tax allowance is reduced to £3,750 if another person receives income from renting out accommodation in the same property, such as a co-owner.

It is also important to note that a homeowner cannot take advantage of the scheme if the rented room is not part of the main residence or is not furnished.

Nicholas Mendestechnical mortgage manager at broker John Charcol and Jeremy LeafNorth London estate agents and former Rics housing chairman share their views below.

A one or two bedroom house?

Jeremy Leaf replies: Many potential buyers face this dilemma; The best advice is to go in with your eyes open and do as much research as possible.

We are finding that many potential buyers are building in their own stress tests in case interest rates rise even further.

They ensure that they can afford their mortgage not only now, but also if it becomes more expensive. Don’t overwhelm yourself – if the decision for the twin room becomes difficult, maybe think again.

Many people advise against a one-bedroom apartment rather than a two-bedroom apartment because they fear it will be more difficult to sell the smaller property when the time comes.

Future-proof: Anyone who decides to buy a one-room apartment as their first home will quickly realize that they can no longer cope with it

But think about your own area and take a look at what else is on the market – if there is a surplus of single bed rooms on the market currently, there’s a good chance this will still be the case when they sell .

However, in our area this is the case for two-bedroom properties and not one-bedroom properties; Many of the former are for sale and only a handful of the latter.

A twin room offers you more flexibility and space. So think about your lifestyle and any changes that might occur in the coming years.

For example, if you had children, you might find it easier to live in a larger property rather than a smaller one, where sooner rather than later you might be forced to sell and move because you don’t fit in.

What are the effects of the mortgage?

Nicholas Mendes replies: There’s no doubt that mortgage rates have made buying a home for the first time more complicated.

Prices directly impact monthly payments, meaning you need to re-evaluate which properties are affordable within your budget.

It is reassuring to read that you have not taken the usual approach of extending the mortgage term, as this will mean higher payments in the long term, but may also have unknown consequences later if the term is extended beyond the expected retirement age.

Buying a home is a long-term investment and you want to make sure it meets your current as well as future needs.

While we expect mortgage rates to decline over the next 12 months, they are not expected to drop below 4 percent or return to below 2 percent, which homeowners have been fortunate to experience in the past.

Mortgage dilemma: Most lenders accept applications where a maximum of two tenants live in the property

You should definitely take this into account when reviewing your budget now and for the future.

Taking on a subtenant is an option. While most lenders will accept applications where a maximum of two subtenants live in the property, they will not accept a subtenant’s income to ensure affordability.

In order to leverage renters’ income for affordability, the pool of lenders is reduced significantly to a handful of building societies and certain restrictions.

For example, Dudley Building Society will cap the maximum income it considers at the level set by the government under its ‘room rent’ scheme – currently £7.5k a year.

It must also be assumed that the property is capable of meeting the needs of the borrower(s) and their tenant. Only income from one tenant is permitted, the maximum loan-to-value ratio must be 80 percent and it cannot be interest, not just a mortgage.

Finally, Dudley BS states that the tenant’s rent cannot be more than 25 percent of the monthly mortgage payment.