dont know what do ! advice pls.

k0d

Hello, I am a 25 year old imigrant who bought a house in march this year, I bought it for 105k, initially it was on the market for 137k (3bed house+garage), I've putted a 20k deposit which left me with a fixed 2 year loan of 85k (5% - £500 p/month).

To quickly pay my mortgage I have decided to pay it double (1k p/month) as the interested is calculated daily I found this beneficial, but I plan to go for a offset mortgage on the end of the fixed rate.

But now with the economy at their knees I am not sure if I should keep paying the additional £500 into my mortgage or should I save it.

I decided to enter in the UK proprety ladder because I thought it was a safe investment at the time, when I went to buy a house in my home country the euro was too strong at the time (1£ - e1.25) instead of e1.45 (I would've lost 10/15k in currency). The initial idea is to sell this house in 4 or 5 years (on my 30's) and move to my home country and buy myself a nice house.

Currently I save around 1k per month and my only debt apart from the mortgage is my student loan (3k remaining/£200) p/month.

For you to have an idea how bad the housing market is in my area, in 2007 my neighbout bought their house for £120k and its a semi-detached 2bed house, I bought mine for 105k 3bed 1garage, when I bought my house other house a 4bed with garage detached was being sold for 155k, they reduce to 135k, even at that price it didn't sold, they manage to put on auction and it was sold for 110k.

The real question is, should I save the money to prepare my self for the worst (at least to have money to go back home) or should I keep paying the additional £500 for the mortgage even knowing the houses are falling in prices?

StuartGMC

K0d
You pose an interesting question, I don't feel I can advise one way or the other on overpaying but offering the following thoughts:

1) It doesn't matter what happens to the price of a property until you need to remortgage or sell
2) You've bought when, from your description the prices have dropped alot
3) Knowing that, you should also reflect on the last recession, when house prices remained flat for about 3 years from 1992 to early 1995 (we bought in 1994). It's not clear yet but expect prices to drop more, then if they don't you'll be in an even better position
4) Is your sell and departure from UK a fixed date or an aspiration?
5) The more equity you have in the home, the easier it will be to remortgage after 2 year fixed ends, so consider the LTV you would want to be at this time
6) If you have to sell, you'll need to cover the mortgage to clear any debt, either by overpaying as you are or having savings to cover the difference
7) Moving mortgage or just selling up requires some fees saved
8) Offsets need a good proportion of savings (plus monthly income if current account) to make it viable.
9) You should ensure savings of 3-6months income, or 6-9 if self employed, in ready access form before overpaying. I guess in your case it could include money to travel back to family at short notice so needing to pay premium fare for example.

As you note the £ to € is not as strong as it was, but very difficult to predict trends.

If you don't intend to keep the property once you leave UK and rent it out via property management, then you are faced with a very difficult consideration having taken the house as an investment rather than seeing it as a debt. The investment board may be better, but in essence you need to consider:

A) You will have to clear the debt related to the mortgage
If the selling price does not increase, then you need to reduce the capital owing, now comes the tricky part to consider your £500 per month.

Offset really needs say >20% saved so you remove the issue of slightly higher interest rate these attract. The advantage is with the correct product you won't face ERC when you do sell.

You may (Icelandic banks etc aside!) be able to get a better return by putting that firstly into a good Cash ISA to £3600, followed by a good interest bearing account (less tax in the latter case) for 2years until your fixed ends. However you must consider this as money dedicated to reducing the mortgage capital in 4-5yrs time, not be tempted to spend it. With this saved (and some offset allow you to include Cash ISAs) then you could move to an offset.

Hope there are some things to get you thinking, but as noted, I cannot advise specifically either to overpay entirely or save ready for offset (although without savings you won't gain from an offset vs best other rates) followed by OP/secure saving.

k0d

stuart, thanks for the quick reply, thats the dilema, what I want in the end is to be prepared if everything goes wrong, I already have around 25k invested on my propriety and I don't want to loose that money (dont care if I dont make a profit though).

not sure when I am going to leave the uk, its not a fixed date but an aspiration.

I do plan to have more than 20% when my fixed rate ends.

dimbo61

What you dont say is what interest rate you are paying on your mortgage ( fixed ) or who its with ?
As you are already overpaying by £500 a month I would carry on and if you can afford to also save into cash ISA,s each year.
Build up as much equity in the house and savings over the next 2 yaers.
In 2 years see where the housing market is and what you want to do !
If you have reduced your mortgage to £65k and have another £7k in savings
you can then look for the best deals as you have a very good LTV and if you want to return ( home ! ) you can get a BTL mortgage as you again have lots of equity in the property.
Forget the housing market and try to reduce your debts ( mortgage )
GOOD LUCK

k0d

thanks for your reply, my answer to your first question is derbyshire bs, 25years fixed at 5%. Yes I can manage to save 1k p/month.

Optimisticpair

K0d,

As above savings are good if you have to call on them and you need something put by for the fees involved if you are selling or remortgaging. The value of your house isn't vital unless you sell it or remortgage to an offset without an early repayment charge. I would sit tight for now. On the bright side you are secure and haven't got a bad landlord to put up with. Look at how things are in a year's time and see if the picture is clearer, then review again six months after that. Good luck.