To overpay mortgage or to increase savings?

thegentleway

steampowered said:

If you are above 70% LTV, overpay the mortgage. So that you can get the most competitive interest rates when your fixed term expires.

Once you get below 70% LTV, put the rest into a stocks & shares ISA. Ideally through a stock market index fund. The stock markets return on average 7-8% per year so over the long term that is a complete no brainer.

As an alternative to a stocks & shares ISA, you could invest more into your pension. This has the disadvantage of locking money away from retirement, but the advantage of saving income tax and national insurance.

I recently applied for mortgage and best rates were from 60% LTV. Next drop was 75% LTV.

jimjames

B0bbyEwing said:

Expotter said:

With regards to property valuation when remortgaging, this might make it clearer

https://hoa.org.uk/services/ask-an-expert-2/ask-an-expert-i-am-managing/how-do-i-value-my-property-before-remortgaging/

Went to his place, he sorted another 5 year fixed, the cheapest being with who the initial 5 year was with - Nationwide, so that side was made easier.

If you stay with the same lender it's not actually a remortgage, it's a product switch so there is no need for a valuation. If you change lenders then you will need to get a formal valuation done whether that is by the agent doing an assessment from their desk or visiting the property but it will need to be done by a professional not just taking your guess.

MX5huggy

Back to the pension, I think you’re being a bit coy about which provider you’re actually with for the work place pension but I think any have to allow you a transfer out so each year you could transfer that year’s pension into a SIPP. It’s not something I done or would need to do so I’ve not checked.

Back to Salary Sacrifice pension contributions, so your employer is willing and bothered to fiddle 15 minutes here and there off staff but not willing to fill in a few forms and tick a few boxes to save them all the employers NI on the pension contributions made (they don’t have to pass this saving on to staff, my employer doesn’t, but I save employee NI)? I’d write to the finance director. However if most staff are paid National Minimum Wage then Salary Sacrificing is not applicable because you can’t SS below the NMW. 

IAMIAM

This is interesting.

My philosophy is once my mortgage is at 60% LTV, coming soon in the next year or two. I will no longer overpay.
I am paying into a LISA £5000 yearly and hope that will create a lump sum to pay off mortgage at 60.
I also top up my work pension (DBS Scheme) which banks me £1100 per annum for retirement (currently valued at £7000)
I also have an old DBS Scheme that allows a CETV transfer that I might use at 60 too, currently has a value of £120k transfer or paying £5000 per annum at 65.

I could do more, but I want to live too. I think mortgage overpaying is good if rates are increasing and your payments need reducing or you want to get into the best LTV band you can. Although at the moment the difference between rates is literally peanuts comparing between 60% and gradually up to 85% LTV!!!

I do always wonder what would happen if I was jobless, and the worst case scenario is I would very quickly apply and take out additional borrowing on my mortgage before my job ceases. The problem is, if you have savings, you get literally no government help, so I suppose have equity as your savings is a good call..

B0bbyEwing

jimjames said:

If you stay with the same lender it's not actually a remortgage, it's a product switch so there is no need for a valuation. If you change lenders then you will need to get a formal valuation done whether that is by the agent doing an assessment from their desk or visiting the property but it will need to be done by a professional not just taking your guess.

Ah thank you. That makes sense now.

MX5huggy said:

Back to the pension, I think you’re being a bit coy about which provider you’re actually with for the work place pension but I think any have to allow you a transfer out so each year you could transfer that year’s pension into a SIPP. It’s not something I done or would need to do so I’ve not checked.

I'm not being coy at all. I basically answered it on page 3 & grumiofoundation showed that they understood on page 4.

It seems transferring out is an option (I assume this means transferring some (or does it have to be all?) of your pot to another provider). 
Not sure I would bother to be honest. Despite the fact that I believe it to be invested middle of the park at its most risky & despite the fact after 4-5 years it hadn't done much better than my own deposits, I also don't believe I have the answers either. 
So my SIPP is doing ok in terms of percentage. It could just as well do that same percentage but in the red. I'm just fortunate that that isn't the case. 

So I'd rather stick with my plan that is eggs in 3 baskets rather than 1 (well, 2 - SIPP & LISA), forget about the workplace pension, focus on the SIPP & LISA, then come retirement I'll have this extra one which will be like a nice bonus that I never planned on.

MX5huggy said:

Back to Salary Sacrifice pension contributions, so your employer is willing and bothered to fiddle 15 minutes here and there off staff but not willing to fill in a few forms and tick a few boxes to save them all the employers NI on the pension contributions made (they don’t have to pass this saving on to staff, my employer doesn’t, but I save employee NI)? I’d write to the finance director. However if most staff are paid National Minimum Wage then Salary Sacrificing is not applicable because you can’t SS below the NMW. 

I didn't know that you personally would bring the point in bold but I knew that someone would eventually as it's what I also raised to them when they rejected the suggestion. 
It was pitched to me in a way that it was win-win. Literally not a single negative point about it, so I couldn't fathom why they were saying no.

I went above payroll & went straight to one of the directors. A very straight talking forward all-men-should-die type woman. After I was scoffed at for daring to eat in to her time she told me I should research better & then maybe I'd understand why.
I told her I'd spent a while looking in to it & found no downside. Would she just mind explaining why the answer is no & then I can just accept it & leave it.
Because we would need to pay people when they're off on the sick she said. That's one reason. 

And so it is - if they'd accepted then fairly recently they would've paid someone 5 months worth. They don't like giving money for something so you can imagine how they loathe giving money for nothing.

thegentleway

IAMIAM said:

This is interesting.

My philosophy is once my mortgage is at 60% LTV, coming soon in the next year or two. I will no longer overpay.
I am paying into a LISA £5000 yearly and hope that will create a lump sum to pay off mortgage at 60.

With regard to lump sum at 60: only 25% is tax free, the rest would be taxed as income?

B0bbyEwing

Just having a quick number crunch (& also posting this so someone can confirm if I'm on the right track):

Using https://percentagecalculator.net/ for quickness

When I started out I borrowed 102k & bought the house for 157k. My LTV being 64.97%.

Using Zoopla, it says my house is valued at 230k-255k. Not sure how it then calculates my neighbours is 226k-250k when the house is identical yet theirs is more modernised. Their kitchen was given a makeover right before they bought it whereas we've not afforded to bring ours out of the 1970s yet. My god did the previous owners love brown.
No offence to anyone else who loves brown.

Looking at houses that sold on the street, some sold for around 170k in 2019 and around 200k in 2020-2021.

So taking the very base of Zoopla estimation of 230k and our existing mortgage of 80k, our LTV now is 34.78% which should put us in these better deal brackets?

Yes?

jimjames

B0bbyEwing said:

So taking the very base of Zoopla estimation of 230k and our existing mortgage of 80k, our LTV now is 34.78% which should put us in these better deal brackets?

Yes?

Yes. Prices can vary on Zoopla depending when/how much other houses were sold for which can skew their calculations