Should I pay ERC of £10500?

Orchid96

There is option to pay 10% with out ERC and after remortgage completes, I can get the surplus amount back (as the remortgage amount is still £530K). 

themoomins

I certainly think interest rates are going to rise quickly, and probably to 6-8%.   The only issue you have with paying the ERC and fixing for 10 years is if you need to sell within the 10 years as you will have to pay another ERC. Also your house might have reduced in value too, being at the higher end of the market.  It's a pickle :-(

 It is a very high mortgage and whilst I appreciate it is not helpful to you, that would cause me sleepless nights in case I was to lose my job.  I purposely bought a house for a quarter of what the bank would lend me to make sure I could always afford it no matter what happened (within reason).

Is selling up and buying something cheaper an option?

themoomins

cx200 said:

propertyhunter said:

Consider whether you can overpay on your current mortgage too, to minimise the ERC should you decide to go down that road. Most mortgages allow a 10% overpayment per year. Of course, you need to have 53k to hand to do that, and then take it back out when you remortgage. 

Would you mind clarifying what you mean by “take it back out when you remortgage”- I’m not quite sure what you mean . Thanks! 

Pay the allowed 10% off the mortgage now to reduced the ERC. Then when he remortgages increase the amount borrowed to claw back the original overpayment.

Seraphi

Orchid96 said:

There is option to pay 10% with out ERC and after remortgage completes, I can get the surplus amount back (as the remortgage amount is still £530K). 

I would pay the ERC and move to Barclays. For a number of reasons.

• If you look at the Bank of England's forecasts over the last year for their prediction of when and how high inflation is going to peak, you can see the peaks have been steadily getting higher and higher and later and later. The difference between what they were predicting in in February compared to now is stark. I expect similar with when and where interest rates will peak due the uncertainty about inflation and the fiscal policy the current Government will pursue. 
• You have quite a big mortgage relative to the national average. I presume that means you have well above average household income but a jump from 2% to 4% (assuming a 25 year term) would increase your monthly repayments by approx. 25%. That's a big hit to absorb when your energy costs have crept up in the last 18 months and you undoubtedly have other pressures. 
• Barclays are pretty good with porting mortgages. If you need to move in 5 years time you are unlikely to have issues with that. Also the rates Barclays offer to existing customers are very competitive. For example you can get a 10 year fix with Barclays even today at 3.05%. Plenty of people would bite your hand off for that today. The additional mortgage you'll need for a bigger mortgage is unlikely to be as bad as the market rates at the time you move.
• Barclays overpayment system. Comfortably the most powerful on the market. You can overpay 10% of the balance like most mortgages but you can also "overpay" by more than that into an overpayment balance. This pot is taken into account when calculating your interest and can be used in future should you wish to make underpayments.

You can check your sums as you when you'd break even from paying the ERC here: https://app.nous.co/refix

Hope that helps.

Orchid96

Thank you @Seraphi for all that feedback. It really helps.
We don't have plans to move in the next 10 years.
Our mortgage offer is valid till mid December, so we were planning to complete the remortgage in the first week of Dec.
Only confusion now is whether should we wait until then or request our solicitor to complete it asap.

Orchid96

themoomins said:

I certainly think interest rates are going to rise quickly, and probably to 6-8%.   The only issue you have with paying the ERC and fixing for 10 years is if you need to sell within the 10 years as you will have to pay another ERC. Also your house might have reduced in value too, being at the higher end of the market.  It's a pickle :-(

 It is a very high mortgage and whilst I appreciate it is not helpful to you, that would cause me sleepless nights in case I was to lose my job.  I purposely bought a house for a quarter of what the bank would lend me to make sure I could always afford it no matter what happened (within reason).

Is selling up and buying something cheaper an option?

Thank you for your suggestions. Yes we know the mortgage is huge, we don't have plans to move in next 10 years. 
The house price may go down, but hope it will recover in 10 years time.

Bob~24601

I think I would pay the £10k ERC, although high, it would be peace of mind for then next 10 years.

If interest rates go to 5%, then wouldnt rates on fixed mortgages be even higher?

As you say, you have till Dec to make a decision. If you have an offer then I would hold off till closer the time. Not sure if there is any risk they can cancel the offer? 

Orchid96

Just coming back to this old thread to inform that we have completed the remortgage to Barclays (10 year fixed at 3%). We paid a huge amount as ERC (£10300), but we thought we may not get similar rate in next few years.

Many thanks to everyone who gave their feedback during the discussion period. 

silvercar

Thanks for coming back, always nice to know how the story ends. 3% looks a good rate, it could be a wise choice.

PK_London

Orchid96 said:

Just coming back to this old thread to inform that we have completed the remortgage to Barclays (10 year fixed at 3%). We paid a huge amount as ERC (£10300), but we thought we may not get similar rate in next few years.

Many thanks to everyone who gave their feedback during the discussion period. 

Great result. In real terms you're still paying negative 7% right now. I hope this pays off for you