Stuck on a high fix for another two years - what are my options?

Lord_Isleworth

My wife and I are racked with indecision regarding our current mortgage situation.We stepped off the London property market over (summer 2010) and moved to Sussex. This has been a brilliant move and allowed us to bank money. We currently have 32k to add to reduce our mortgage liability.
We originally moved just before the property crash late 2007 to a 3 bed house in West London. At the time we fixed with Santander (Sept 2007) for 5 years on 5.69%. The improtant fact here is the redemption to move is 8k. This has been like a pair of handcuffs keeping us locked to this mortgage. Hindsight shows we should have switched a few years ago but is it worth us leaping now to a competitive offset mortgage?
We have two small Children (6 & 3) and we wanted stability and sought advice from independent mortgage advisers at the time. Obviously the rate then went to rock bottom pretty soon after us fixing late 2007.
We struggled a long for 2 years and then decided enough was enough and managed to sell our house at a profit and relocate to Sussex.
Ok some fact and figures:
Our Sussex house was bought for 309k
We pay £825 a month interest only.
We moved late summer and I overpayed 21k to reduce our 215k mortgage down to 194k. I have paid another 19k Jan 2011 so we currently owe 175k. Then in 2012 we can overpay again 17k to try and get it to 155k mark.
The mortgage expires May 2013.
I feel slightly sick when I see how low the base rate is and my wife and I know we are lucky because people are going to the wall and we have this cushion financially.
I am the sole breadwinner and work in the NHS, I had a restructure over the autumn and my job is OK for the time being.
I have been in constant employment since leaving University in 1995. I earn 47k.

So why haven’t we moved deals? We have to pay Santander £8k redemption if we move. We have two years to run on the fix and I read today interest rates will remain low till next year (I know this is just an opinion) Having this bank of equity from the west London house is good and reassuring and we have a plan to reduce our liability from 215k to 155k as you can see above.
We did some figures previously and even applied to First Direct for one of their competitive 2.69% mortgage over the summer 2010. Our LTV would be 50%.This was accepted but we haven't made the leap so this has probably expired.

First direct turned us down at the same time because of my sole income of 40 odd k and two young children etc.

Would people opt for a tracker? If so is there any that makes the move worthwhile? I know that people cannot guarantee interest rate movement but we liked the First Direct one because there wasn’t a massive redemption if we switched but I am still working out whether by 2013 it is worth it all. I don’t want to move and find we wasted money. We can pay the £800 a month at present. Should we just keep our heads down and wait in uncertain times? Are Santander alone in having such hefty redemptions? will the redemption be reduced if we only have two years left to run? do they allow a switch if on their own product or can the redemption be challenged?

Any help is appreciated.

hcb42

It's the risk we all take unfortunately, I was fixed for five years too, just come off it, although it was 4.7% or something. Now have just fixed for two at 3.28%. I did consider the tracker, but this gives us two years security, and there wasnt a lot of difference in the starting payments - as I recall it was £26 a month or so, and my repayment mortgage is £1100+ at moment

Does the ERC not reduce each year though? Mine did with Halifax, and I did review it periodically but it never seemed worth doing. (plus I hate paying ERC!)

I would think it would be more difficult to recoup £8K now with 2 years to run, than it would have been , although obviously not run any figures on that.

You are going great guns with overpaying it though, which will help the LTV % if/when you do remortgage.

anh1904

Each 1% you can save will reduce your interest charges by £1750 this year and £1550 next. So you need to reduce it by 3$ for it to be worthwhile, and have the same level of security regarding rising rates (they will rise at some point)

I suspect it is too late to do much now, you are doing the right thing by overpaying the maximum you can without incurring penalties.

You can get discount deals below 2%, so you can make the figures work, but you'll need to put a spreadsheet together as there will be charges etc. so it will be a close call.