Worth taking the ERC hit?

mrbios

First of all before I start, I know part of this is built on the fear of current predictions that house prices are going to keep dropping for the next 2-3 years. If you think my idea is daft, by all means tell me!

Me and my wife (+2 small ones) bought a house in 2018 for £210k, 39 year mortgage, small deposit on a 5 year fixed term. Currently we owe £185k
We also have a loan of just under £5k which was originally used to replace the kitchen and repair a leaning gable wall. The house was a complete tip when we bought it, smoke damaged and heavily neglected inside and out. We've completely renovated from carpets, kitchen, bathroom, extensive cleaning at the start to remove smoke damage etc. and re-done the entire garden, patio, new big shed, new fences all the way around.
We suspect (though we haven't had a valuation yet) that it's now worth around £250k based on local prices and the larger than average size of our garden (corner plot, with room for an extension). 

Our plan was always to renovate, then re-mortgage getting ourselves a much better LTV, hopefully <75%. This plan may put me closer to 80%.
However projections put the house market at its most dire around the time our fixed rate ends from what I've read (again purely based on unsourced internet commentary i must say, which is why I'm being as cautious as possible with my current path of thinking) 

As all of the work that affects the property value in any large degree has now been completed, we were wondering if the option of taking on the early repayment charge for the benefit of lower monthly payments may be an option? We wouldn't increase the mortgage duration, though we would look to increase borrowing by encompassing the repayment charge and the current loan into our mortgage borrowing. That would cut our monthly outgoings by £309 per month (based off quick mortgage searches). 
My fear is that if house prices drop substantially over the next 3 years, we'll miss out on a better LTV, and with it the monthly savings we could make on a lower interest rate.

For comparison, if we didn't need to increase borrowing for the ERC charges or loan and just re-mortgaged based on current prices, the difference would only be £70-80pm more in savings, which we feel isn't worth the risk.....though I'd be interested in hearing the words of people far more experienced in this matter than myself. We had a broker sort out our current mortgage deal, and everything i do know is only basic (why don't they teach this stuff in school!?!) 

Thanks for any responses  

Thrugelmir

Perhaps start by obtaining some proper valuations for the property. Actual current selling prices are a far better guide than advertised. Then you crunch the numbers with more certainty.

While you are reducing your monthly outgoings. Consolidating the £5k loan and repaying it over 36+ years is going to cost you far more in the long term. 

Remortgaging likewise may add another £1k of costs to your debt. Plus a product fee if applicable. 

RetSol

This may be an overly simplistic view but the acid test seems to me to be: can you afford your monthly mortgage payments now and is your property adequate for your needs?  If so, stop worrying.  You are only 2 years into your mortgage period and have done the right thing by doing the house up and getting it into better shape.  I was in negative equity in the early 90s but it made no difference as I had no need to sell at the time. When I came to sell in the late 90s, I had a healthy amount of equity.  The market may well dip in the short term (I am not sure that any of us can forecast 3 years ahead) but if you are able to pay the mortgage now I would simply roll with it for at least a year.  These are turbulent times and it is difficult to make any assumptions about the future.  This is your home (I assume) - it is not primarily an investment.  Think of it that way. 

dunstonh

A friend just accepted an offer at the asking price set pre-covid 19.  Not everthing is going down. Some locations are neutral or even rising.

bought a house in 2018 for £210k, 39 year mortgage, small deposit on a 5 year fixed term.

So, 3 years fixed left.  Nothing to concern yourself with then.

However projections put the house market at its most dire around the time our fixed rate ends from what I've read (again purely based on unsourced internet commentary i must say, which is why I'm being as cautious as possible with my current path of thinking)

House price speculation is pointless.  It is just people guessing and there are a lot of house price trolls and pessimistic individuals and publications that call a house price crash every year.  One publisher has been saying there is going to be a crash for 20 years in a row.

Its not worth worrying about or trying to predict. If you can afford the payments then that is really all that matters.  Dont pay to get out of a deal now.  Interest rates are not going up any time soon.

getmore4less

You have provided no useful information, monthly payments tell you nothing. 
Full details of both mortgage options
Amount, rate, term, payment and the ERC & costs.
Same details for the loan. 
You can do the cashflow analysis and see what the cost will be at future points.