Mortgage Advice - Offset or Keep Going?

Benito2k

Our current aim is to try and hold on to our 2 bed terraced house that we bought in 2006 and to rent it out. We'll also look to buy a second larger house to move in to.

We've spoken to a few mortgage lenders and to allow us to do this, they require a minimum of 80% LtV on both properties. Now we have this on our 2-bed terraced house (assuming a sale price around or just below the market average for the area) - we're around 77%.

The deposit on a second property (we're looking at £200-£210k) is the more challenging part.

At present, we're overpaying on our current mortgage by £400 a month and have a tracker that is 2.49% above the base rate. After a few years of little movement, the mortgage is now moving in the right direction.

However, we have a bit of a conumdrum.

It's great to be making this dent into the mortgage and to be taking advantage of what is, for us, a much lower rater than the 5.29% we were on in 2010. However, I'm wondering if we should actually be redirecting this money into savings to build up the fund for the deposit required for the second property now that we have passed 80% on the deposit of our current house. Of course, the issue with that is that interest rates are currently so low.

What do people think? Are we better off attacking the mortgage and later realising some of the equity to help fund the second house or to stop that overpayment and save more or, as has been suggested move to an offset mortgage?

My worry with the offset mortgage is getting stuck into a new mortgage term at a worse rate than present and then not being able to rent the house because of the type of mortgage we have.

Ideally, we'd be looking to move towards the end of 2012.

Any thoughts gratefully received! :j

Thrugelmir

Personally I would continue to pay the existing mortgage down. Then review the situation at a later date.

Interest rates are going to rise at some point in the future. So better to focus on today than the uncertainties of tomorrow.

Benito2k

Sorry, I should have stated that we currently have approx. £25k towards the deposit on the new house, which is currently in ISAs, savings accounts, and 6 month bonds.

We are saving approx. £800-£1000 a month towards that deposit.

Thrugelmir

Have you asked your current lender what their policy is towards you letting the property?

Benito2k

Yes, they would require us to have a LtV of 80% on both properties and that is non-negotiable!

Thrugelmir

Benito2k wrote: »

Yes, they would require us to have a LtV of 80% on both properties and that is non-negotiable!

Would the interest rate change, i.e. increase on the let property?

Benito2k

Thrugelmir wrote: »

Would the interest rate change, i.e. increase on the let property?

My understanding is that we may have some grace on moving to a BtL mortgage but would eventually have to do so at a higher rate - I'm not sure what that rate would be.