Overpay Mortgage vs Purchasing Equity from HtB Scotland

sufjanspirit

Good Morning People! Need some advice!
Firstly, apologies if I miss any information to help with advice - let me know and i'll get it posted up ASAP.
Currently in a flat bought in 2014 with HtB Scotland for £197,495 with 20% HtB equity which equals £39,500 equity.
Latest house sale for exact same specification on my flat went for £120k. I get that this isn't necessarily the "value" of the flat, and I am pretty certain that it was a part exchange, but it is all I can go on for now. We are looking at moving house in the next two years, but based on 120k I work out that I am nearly £36k in negative equity once the Scottish Government receive their 20% back!
So my question is - do I overpay on the mortgage, save to re-buy equity, pay into LISA (my partner is not on the current mortgage so could save into that) or do another alternative?
Current Mortgage info is:
Mortgage amount: £132,345
Interest rate: 2.18% Fixed rate deal from March 2020 (works out at £554.53 pm
Overpayment allowence: 5%/4%/3%/2%/1% per year
We are currently able to save approx. £1200 per month, which would exceed the overpayment allowance. 

Hope this all makes sense and has all the info you need!

Thanks!

Sufjanspirit

md258

When do you have to pay back the equity loan? Do you have savings for that as I believe the interest rate is quite high once you hit the 5 years (which I think you'll have hit).

With regards to the negative equity/valuation, what value did the mortgage company use for the remortgage last month? That will probably be a more accurate estimate of the current value. Have property prices really fallen by that much in your area?

Thrugelmir

If you are in negative equity then it would seem best to continue to overpay the mortgage and save the remainder. Reconsider your options at a later date. 

sufjanspirit

md258 said:

When do you have to pay back the equity loan? Do you have savings for that as I believe the interest rate is quite high once you hit the 5 years (which I think you'll have hit).

With regards to the negative equity/valuation, what value did the mortgage company use for the remortgage last month? That will probably be a more accurate estimate of the current value. Have property prices really fallen by that much in your area?

In Scotland the system I believe is different and there is no loan or interest to pay, it is 20% of the sale price that needs to be given back to the Scottish Government. 

The mortgage value assumed to be on the mortgage detail was £243k, however similar flats in the area have currently sold for £120, £125, £134.5, and some slightly different models for as much as £165k. We live in Aberdeen, and the Oil crash prices have hit the area hard. 

Thrugelmir said:

If you are in negative equity then it would seem best to continue to overpay the mortgage and save the remainder. Reconsider your options at a later date. 

Yeah, I know the standard reaction is to overpay the mortgage, but if the valuation has gone so low (and will, presumably, rise at some point) then I guess its a calculated gamble to pay off the potential benefits in a 5% rise in house prices from the current valuation base against the current interest rate on the property? 

dimbo61

I think the overpayment allowance you have quoted is the ERC ! Early repayment charge.
You need to read the T and C of your mortgage offer but most allow 10% overpayment each year of the outstanding balance on say the 1st of January XXXX year.
Your only paying interest on the mortgage and not the 20% owing to the Scottish government.
So either overpay if you have No other expensive debt or maybe the LISA 

Thrugelmir

Until the £36k shortfall is addressed you are stuck between a rock and a hard place. If the value of your property rises so will the next property you intend purchasing. The gap between the two will widen. Resulting in no financial benefit. At least by reducing the mortgage you'll save interest. This over time will compound and reduce your mortgage debt further. 

sufjanspirit

dimbo61 said:

I think the overpayment allowance you have quoted is the ERC ! Early repayment charge.
You need to read the T and C of your mortgage offer but most allow 10% overpayment each year of the outstanding balance on say the 1st of January XXXX year.
Your only paying interest on the mortgage and not the 20% owing to the Scottish government.
So either overpay if you have No other expensive debt or maybe the LISA 

You are quite correct! This does change things, and I guess it is more a question of:
We can (presumably) save about £1,200 a month, and at 10% overpayment on 1st January we could "overpay" up to £13,220 - we wont reach this limit this year, but we would be able to save around £8,400 to put to good use.

Should we prioritise the LISA to get the free £1,000 bonus from UK Government, or should we put it all into the mortgage? 

sufjanspirit

Thrugelmir said:

Until the £36k shortfall is addressed you are stuck between a rock and a hard place. If the value of your property rises so will the next property you intend purchasing. The gap between the two will widen. Resulting in no financial benefit. At least by reducing the mortgage you'll save interest. This over time will compound and reduce your mortgage debt further. 

I guess the problem isnt the value in the future house, as we would choose a property that was affordable to us, but the fact that nothing is affordable because of the equity issue, we don't even have a deposit!