Pay down mortgage or save for now?

WLITC

Looking for some advice. I bought a shared ownership flat (35%) 12 months ago. I can comfortably manage the mortgage payments and I am fortunate to be in a position where I still have over £1k a month that I can save and over the past year since buying I’m managed to save a further £11k (after all my savings went on the deposit and fees). What I don’t know now is what is my best approach money wise going forward.  Even before the sale completed I was adamant I wanted to pay extra each month on the mortgage, but I said to myself to worry about that after several months as I was buying furniture etc and then I also wanted to have some savings behind me again as a ‘just in case” plan. As above I now have £11k and I feel like I need to make a plan as it’s the savings isn’t really earning any significant interest.  

My question is what is the best way forward. Is there any reason not to pay extra each month on my mortgage?  Normally I’d assume not but what if the housing market falls and I’m essentially in negative equity, is that a reason not to pay off the mortgage faster if that happens?  The other idea is just to save the money. I’ve pretty much decided that in the next 3- 4 years, depending on how the market goes, I’ll look to sell this place and buy a property outright, ie 100%, not a shared ownership. Would I be better off just saving for the next 3-4 years so I have a huge deposit to support that? Or do I try and do both, pay say an extra £300 a month on my mortgage to save interest and save the rest for a deposit? 

bethjames5681

If your mortgage rate is higher than your savings rate, I'd put a buffer (emergency fund) aside (6 months outgoings) and then overpay. 

varfor

Unsecured debt and lack of emergency fund are big reasons not to overpay. 3-6 months in cash is sensible and you may have that with the £11k.

If you aren’t contributing much to retirement that’s worth looking into before overpayments too.

If there’s still money left after that then overpaying is a solid approach. It’s probably going to have a better return than a savings account at the moment.

I don’t know much about shared ownership but I would think negative equity is a good motivator to overpay. You will surely end up having to pay the difference at sale time otherwise.

If you intend to sell could you use the equity in the first place as the deposit for the new one? I suppose if you want to keep the first place and buy a second separately then saving a deposit in cash would be the way to go.