Should I overpay on my Mortgage?

YoungDumbNBroke

Hi all,

First time poster here. I just turned 23 and am now getting serious about trying to clear this mortgage faster. Current situation is that my partner and I took out a mortgage for a flat about 16 months ago (May 2017). We had it fixed for 5 years given economic uncertainty of brexit etc. and managed to get 2.88% interest (with a 15% deposit). This initially put our mortgage at a pot of roughly £114k. As far as I am aware we have about £106k left (Paying £500 a month).

I (not my partner) am at the stage where I am now expecting a pay bonus of ~£100 p/m, and also am getting rid of a PCP car that is worth £250 a month for me to lease, and then insure/tax/service, which is costly due to the sportiness of the car. I'm swapping it for a car worth roughly £2,000 that I will own outright.

Currently I am saving £200 a month, and will obviously see this go up by £350 a month (giving me £550 a month to save). Come March/April we will also have cleared out some other debts that will give me the ability to then save an additional £300 a month, however that is in the future.

So my query is this. It has always been my partner and I's plan to try to maintain the flat (we did extensive renovations and invested ~£25k into it, plus a £22k deposit), and use it as a cash cow for renting in the far and distant future, hopefully letting us both retire comfortably! This puts us in the predicament of having to save up another deposit/legal fees/storage fees/moving fees etc., and we would hope for our next property to be in the ~£350k mark.

So, the money that I now (will) have the ability to save - will this be better off overpaying as much as I can on the mortgage and then releasing equity when we come to buy the next property (I expect we have roughly 60k worth of equity in the property currently, as it was revalued at ~£170k). Or do I invest it better elsewhere? I know banks are giving low interest at the moment, however I have dabbled in Peer-to-Peer lending before and found the interest rates to be reliable at roughly 3-3.5%. I wouldn't really consider a lifetime ISA (or any bank/building society ISA for that matter) as I want my money to be accessible.

Any help/advice/experiences would be much appreciated! Cheers.

ViolaLass

ISAs can be instant access.

How long do you think you'll be saving for before you buy again?

YoungDumbNBroke

I have an instant access ISA currently however it is only fetching 0.25% I think. I use it as my accessible savings account.

Not sure on timescale however I would anticipate in the next 2-3 years.

Mutton_Geoff

YoungDumbNBroke wrote: »

use it as a cash cow for renting in the far and distant future, hopefully letting us both retire comfortably

Where on earth did you get the idea that a rental property might be a “cash cow”.

Since you are young and starting out, why not simply save in the most tax efficient and disciplined manner so you will have a larger deposit when you move up into a larger property which you may certainly wish to do as you get older or your family gets larger.

Downsize from your 6 bed house at retirement and buy a second property for income stream if the tax situation is more favourable then, but for now, concentrate on building your own career and main property rather than risk your future gambling on the vagaries of the UK property market in its current state.

YoungDumbNBroke

It would be a cash cow in the sense to us that as it is on a 25 year mortgage, it would be paid off lets say by the time we are 60 at the latest, allowing us to save the monthly rental provided from it (obviously taken off landlords insurance and EA fees and all other associated costs with owning a rental). If we decided to sell then we would (hopefully) be sitting on a property worth at least in excess of 150k that could go to a nice retirement lump sum if we so wished.

I don't see any issue with me trying to lay some foundations for my financial longevity now, rather than wait 15 years and realise it's too late.

ViolaLass

Are you paying into a pension?

YoungDumbNBroke

Yes, currently paying 6% of my salary into a pension and my employer pays 10%. I have already upped this.