Overpay mortgage or pay off help to buy equity loan?

MiseryChastain

Hello

I am seeking some advice about what to do with some savings I have.

I bought a flat for £485K in mid-2017 with the help of a £289K mortgage with Nationwide and a £145,500 (30%) help to buy equity loan. My mortgage is a two year fixed mortgage at 1.56% and so my monthly mortgage repayments are about £810 per month.

I have recently come into some money (£60K) and am thinking about how to apply this. I want to increase grow my equity in my property as a priority as rapidly as possible, however I do not have long term intentions of staying in this flat – perhaps a further two years’ maximum as I ultimately want to buy a house jointly with my partner (without a help to buy loan which we will be able to afford with a joint mortgage based on a joint income rather than only mine alone).

Consequently, I envisage selling my flat before the expiry of the first five years of the help to buy equity loan and I am therefore within the interest free period for the equity loan.

Now my gross annual salary before tax is 85K per annum and I could afford increase my Nationwide mortgage payments to something like £1,100 per month (so overpaying by £300 per month). I could also afford to make a one off overpayment from my savings. Two questions:

1. Should I overpay on my Nationwide mortgage or repay the help to buy loan?
2. If I overpay the Nationwide mortgage, is the 10% overpayment limit inclusive of both monthly overpayments and a one off overpayment? I wanted to increase to £1100 per month and make a one off overpayment of 28K (i.e. 10 per cent of the loan value).

Obviously a huge factor in all of this will be whether I expect the value of the property to go up. My inclination is that it won’t – it’s in London, it’s a new build flat, although it is in Zone 2 and next to a very lovely park. I’ve no real way of telling to be honest and not sure how I would? Obviously if I expect value to stagnate or drop, it would make much more sense to overpay the Nationwide mortgage.

Any advice would be greatly appreciated.

MC

Pixie5740

Are you intentionally spamming the forum?

https://forums.moneysavingexpert.com/showthread.php?t=5870229

MiseryChastain

Pixie5740 wrote: »

Are you intentionally spamming the forum?

https://forums.moneysavingexpert.com/showthread.php?t=5870229

Slightly different question about mortgage over payment, no need to be rude.

Pixie5740

No need to start multiple threads about more or less the same thing. That is rude.

MiseryChastain

Anyone else? Thanks.

TrickyDicky101

The HTB equity loan is interest free for the first 5 years/exceedingly cheap thereafter so this question should wholly be about your expectations of house price rises. If you believe they won't rise then you should only consider overpayments to the mortgage (if overpay mortgage vs pay off HTB are the only options).

Smi1er

IIRC Nationwide allow you to have back overpayments but check with them first.

Pay off the max without penalty and the rest in premium bonds. If you earn £85K before tax I'd be paying more than £1,100 pm off my mortgage

saajan_12

Its a simple calculation of whether you think the house price will increase by MORE THAN your mortgage interest rate each year.

IF you pay 60k off your mortgage, you're saving £1,116 in interest per year. Do you think a 60k share of the current property value will be worth £61,116 (ie a 1.86% increase)?
- If you think it'll be worth more -> then pay off equity loan
- If you think it'll be worth less -> then pay off mortgage

This is ofcourse subject to the max overpayments you can make on your mortgage - usually 10% TOTAL on top of the NORMAL monthly payments. Also check whether it's 10% of the balance at the start of the year or of the original loan.

kingstreet

Smi1er wrote: »

IIRC Nationwide allow you to have back overpayments but check with them first.

Pay off the max without penalty and the rest in premium bonds. If you earn £85K before tax I'd be paying more than £1,100 pm off my mortgage

Overpayment redraw only applies to Nationwide mortgages in existence prior to March 2010;-

Mortgages taken out before 29 April 2009

If your client's current mortgage was taken out before 29 April 2009, they will move to our Base Mortgage Rate (BMR) when their deal ends. The BMR is guaranteed to be no more than 2% above the Bank of England base rate and includes the ability to borrow back any overpayments your client may have made, and take payment holidays. If your client chooses to switch to a new mortgage product, they'll no longer have access to the BMR or its facilities and will revert to our Standard Mortgage Rate (SMR) which has no upper limit or cap.

Mortgages taken out before 4 March 2010

If your client(s) took their mortgage before 4 March 2010 and are currently on our Standard Mortgage Rate (SMR), your client will also have access to borrow back and payment holiday facilities. Please be aware that if your client chooses to switch to a new mortgage product, they will no longer have access to these facilities.

kingstreet

saajan_12 wrote: »

Its a simple calculation of whether you think the house price will increase by MORE THAN your mortgage interest rate each year.

IF you pay 60k off your mortgage, you're saving £1,116 in interest per year. Do you think a 60k share of the current property value will be worth £61,116 (ie a 1.86% increase)?
- If you think it'll be worth more -> then pay off equity loan
- If you think it'll be worth less -> then pay off mortgage

This is of course subject to the max overpayments you can make on your mortgage - usually 10% TOTAL on top of the NORMAL monthly payments. Also check whether it's 10% of the balance at the start of the year or of the original loan.

Nationwide is 10% of original loan each year.

sal_III

TrickyDicky101 wrote: »

The HTB equity loan is interest free for the first 5 years/exceedingly cheap thereafter so this question should wholly be about your expectations of house price rises. If you believe they won't rise then you should only consider overpayments to the mortgage (if overpay mortgage vs pay off HTB are the only options).

That a common misconception and major pitfall that so many people fall for.

If you plan to stay in the property for more than 10 years the HTB equity loan will almost guaranteed to cost you way more than a mortgage to repay. Even if there is a minor dip in property prices due to Brexit, overheated markets and whatnot, the prices will recover in less than 5 years, your property is almost guaranteed to cost way more in 10 year than it costs now. Meanwhile from year 5 you are paying interests at what is now mid-market rate. So after the 5th year any increase in the property value is a direct loss, compared to a mortgage.

I won't call that "exceedingly cheap"