Reduce mortgage or save for deposit?

matthew74

I am in a bit of a quandary. I have a tracker mortgage of about £250000 with Natwest and slipping rapidly towards negative equity. Not a problem in itself.

We are looking at moving to a larger/more expensive property in 2-3 years and will have to increase the mortgage considerably.

I have considerable amounts of disposable cash every month from dual incomes.

Should I pay off the current mortgage as much as possible to keep up my LTV before moving (current rate base rate +0.39%), in which case I will have only a tiny deposit for a new house.

Or should I let myself slip into negative equity on my current property but build up a savings pot to use as a more hefty deposit when we come to move.

If I am in negative equity when I sell my current home and want a larger mortgage with Natwest will they make me pay the balance in cash when I redeem the present mortgage or would they let me carry over the debt to a new property?

In short should I pay circa £100,000 off my mortgage over the next few years or save same amount in a high rate savings account to use as deposit on a larger property.

I hope I make sense!

Any advice gratefully received.

Cheers.

ps posted originally on mortgages board, thought it might be better here.

StuartGMC

Matthew
Is the mortgage portable?

What is the present "likely" value of your house and, more importantly, what price are people willing to actually pay?

In essence it makes little difference in terms of the "price to change" but you will need to clear the mortgage if you are changing provider etc I think.

Remember the mortgage will be offered on the current valuation in the market so has the differential reduced between your house and that you are looking to buy?

What LTV will you be looking at in the new property, this may be a problem if you need more than 85% mortgage in terms of choice and rates offered?

If you already know what you are looking for, would late 2009 be a better time to buy just ahead of anticipated price rises from 2010 onwards?

Will your property sell?

Hope this helps kick the thread off with specific input from others.

matthew74

Stuart, thanks for the input, gives me a few things to think about!

dimbo61

If,s and but,s and maybe !
Hi Mathew 74
In the here and now you have a ( what is for me a huge ) mortgage of £250,000 at 2.39% on a tracker deal ( lifetime ? )
You might ? be moving in 2/3 years but right now you think you might be
heading into negative equity.
If you have lots of spare cash I would be filling a cash ISA for both of you each year and overpaying the mortgage as much as you can afford each month ( check with lender re overpayments )
Building up the equity in your home gives you options when you decide to move or remortgage onto another deal.
If you have a LTV of less than 60% you can get the best deals !
Getting into the habit of overpaying your mortgage each month also proves to your lender that you could afford a much bigger mortgage and have a big deposit to put down on your next home. GOOD LUCK

StuartGMC

Matthew
Check this article on the BBC
http://newsvote.bbc.co.uk/1/hi/business/7775117.stm

ailuro2

It's still the same principle as overpaying any other mortgage - if the interest rate is better elsewhere, then put it there, if it's better on your mortgage, put it there.

Put it in an overpayment pot in your mortgage rather than paying it off forever, that way you can access it if there were ever an emergency.

p.s. to everyone reading this with a tracker who is new to this and can't really be bothered setting up savings ac!!!!s etc, then make one phone call - to overpay for 'free' call up your bank and ask them to keep your payments the same as they were a couple of months ago - overpayment without noticing a difference in your outgoings! simple but effective.

matthew74

Thanks for all the input.

I fully understand the debate about savings account rates v mortgage interest rates. And I have kept my tracker repayments the same as rates have dropped - hence am overpaying currently (with no penalties).

Say my house value drops to 200,000 when I sell and I still owe 250,000 on the mortgage. ie, I owe 50,000. Will they let me pay off this 50,000 by adding it to the mortgage on a new property if I stay with the same provider?

Say I then buy a house for 450,000, and have a 100,000 deposit. Thus needing 350,000 mortgage and then add on the 50,000 I owe giving a 400,000 mortgage.

I have kept 100,000 deposit by not overpaying on the current house so my LTV on he new property is 80%.

If I had payed off 100,000 on my mortgage on my present house I could sell with a balance of +£50,000 which I could use on the new property as a deposit which would give me an LTV of about 89% which I may not even get a mortgage for.

Has anyone followed and got any thoughts??!!

Thanks

dimbo61

You will not be allowed to owe the £50,000 to the lender and transfer that to the new property, you have to clear the old mortgage before you will get a new mortgage off anyone.
reducing your debt on your existing property is still the best way to go.
Now I fully understand the savings ( in a high interest account ) V the overpaying on the mortgage BUT savings rates are going to drop like a stone which is very bad for millions of savers ( mostly pensioners ! ) so overpay on your mortgage and see where the housing market is in 2/3 years.
Fill an ISA X2 each year as tax free and makes up a good emergency pot.

matthew74

Dimbo

Thanks for the reply, I always use up our cash ISA allowances, and have money in fixed rate bonds of up to 10% maturing next summer, which I will almost certainly use to reduce the current mortgage.

matthew74

I've just read an interesting article online dating from the mid 90's - the last time there was widespread negative equity. It stated that lenders were routinely allowing borrowers to carry their negative equity to a new property.

If this would be the case again I still think there is a case for me to keep cash for a large deposit on a new property rather than plough it into my current mortgage.