Yes, one of my regrets with this is that I come in a little over 80% LTV, so will be paying an extra 0.2%. It might be more financially prudent to buy something a bit cheaper. However, financial prudence, at the end of the day, isn't everything.
I told myself going into this that I'd only buy a place I could see myself in for a long, long time, as opposed to my first rung on the 'ladder' (I know a lot of people who were badly burned by the whole ladder concept towards the end of the bubble, buying unsuitable houses in the middle of nowhere etc.) So I've been looking a while, and have been very fussy. The place I'm buying is pretty much ideal in terms of location, layout etc, and absent a big change in personal circumstances I don't see myself wanting to leave it.
For that, I'll put up with the extra 0.2% interest rate. As you say, unless prices drop sharply, moving lender with a sub-80% ltv may well be an option in a year or so anyway, given that I'll be overpaying a fair bit.
Maybe I'd be wiser sit tight and save, and hope for further price drops, but at this point I really just want to get on with things, and if prices star rising again this could backfire. It's not like there are loads of equivalent houses on the market, either; I might be a while waiting for something in such a good location and small enough to be in my price range (and with a south-west aspect and so on and so forth, as I say I have been kind of fussy) to show up again.