Lump Sum - reduce mortgage or use towards bigger property?

fraxis

I currently have 93k to pay off on the mortgage for my flat (20 years remaining on the mortgage).

Sadly both my parents passed away earlier this year,and the first lump sum from their estate is due to be paid out to myself and my brother soon.

I could use this lump sum to shorten the payment period on my tracker mortgage by about 10 years at current rates, but as I'd like to try and move up to a relatively bargain price semi when prices bottom out, would I be better off investing the money in a savings account and ultimately use that in conjunction with the continuing mortgage to go towards buying the semi instead?

I'm worried that although I could reduce my mortgage balance, I might find it tough to get a new mortgage for the difference between the equity of the flat and the semi, and wonder if keeping the current mortgage in place is the best option?

Any advice appreciated please.

dimbo61

Sorry to hear of your loss.
You dont mention what you tracker rate is at the moment and if the recents cuts in the BOE base rate will make it even cheaper.
If you have a lump sum to invest and can get a better rate of interest in ISA,s or high interest accounts ( with easy access ! ) then you might well be
better off saving the money and paying the mortgage as normal.
When you find your next home you have a budget equity in flat plus money in bank plus any extra you can afford to borrow.
As its a buyers market consider part EX with a builder for a new home but make sure you get a very good deal.
People go on about new builds losing money and being overpriced but they
could give you the home you want and cheaper bills ( modern insulation/ boiler/ double glazing etc )
Wait untill you have the money in the bank. GOOD LUCK

Wookey

Hi there, condolences on both you and your brothers loss. If you are determined to move up on the property ladder then ploughing the money into your current mortgage probably isn't the best option for you. Short term you can invest the lump sum into ISA's and any other decent rate savings accounts to offset some or most of the mortgage, having it all offset would avail afaik of a small tax break for you.
I know that round our way, if you have the cash sitting to buy outright you can ask newbuild house builders for some serious discounts as they are mad to get empty new houses sold, i have heard of up to over 60k being knocked of. Currently though house prices are still falling, there will be a lot of people trapped in negative equity and allthough there may be demand for private housing the banks/societys aren't lending.
In todays climate, personally, i would prefer to have reasoanbly easy access to some funds to allow myself a degree of flexibility should something unexpected come up (good or bad).

ragingbass

If you're on a good tracker mortgage, then with interest rates so low at the minute I'd be tempted to keep the money in a high interest savings account. Calculate how much you're paying in interest on the mortgage, and then calculate how much you'd be making from the savings but remember to make sure you factor in the tax!

Hindsight is a wonderful thing, and 10 years ago it would have been a much better investment to move up to a bigger property. But at the moment things don't quite look so good, so I think it would be a risky time to plunge everything into stepping up the ladder.

You mention that you'd like to get a bargain semi when the market bottoms out, but that's the trouble, no one knows when it will bottom out until it's already happened. Right now could be a great time to buy, or some analysts could be right and prices will start to fall when the recession really kicks in? No one really knows unfortunately.

For the big picture, I personally don't think it's such a bad thing that prices could fall further and people start thinking more of their homes as a place to live, rather than being a cash cow.

By saving the money you get a guarenteed growth on your capital (assuming you get the good rates after tax). Or, you could move to the bigger place and play the housing market investment game and potentially get greater gains, or lose out?

If it was me, I'd take the guarenteed savings myself