Paying off Help to Buy loan

GMac14

We bought a new build in March 2021 for £210k with 5% deposit and 20% HTB with 5 year fixed rate with Barclays at 1.99%.

We have been comfortably paying £800 per month mortgage with occasional overpayments of £250 to £500 on an ad hoc basis. Mortgage was £157,500 and is now at £133,869 owing. HTB loan was £42k when house was bought at £210k. Same style house on same estate are now selling for circa £280k, so HTB loan is probably now around £56k.

The plan moving forwards was from July onwards overpay mortgage by £1,000 per month (barclays allow to overpay up to 10% per year) so when 5 year fixed ends in march 2026 we will hopefully have brought balance down to around £100k owing. I was born in 1971 so mortgage is 20 years. Idea being that when we remortgage overpaying will mean even if we get a new 5 year fixed at 4.5/4% the monthly payments will stay a similar amount.

It’s possible with bonuses from work to overpay £1k per month and also save a decent amount. So far (without bonuses) I have saved £2,750 in barclays rainy daysaver at 5.12% and £1500 in santader edge saver and £500 in Lloyds at 5.25%. 

The goal was to overpay mortgage by £1000 per month and reduce to around £100k AND save as much as £40k over next 18 months or so with a view to paying off 10% of the HTB Loan which will be around £28k. Regular bonuses from work will make this possible. 

Am I missing a trick here ? Would it be more sensible to not overpay mortgage by £1k per month and instead save this towards paying off HTB in full? £40k saved plus £18k (would have been overpaid on mortgage) would be £58k and paying full 20% of HTB would be £56k if house valued at or sells for £280k

Would i be better off not overpaying mortgage and having a balance of around £125k but clear the HTB in full?

The intention is to stay in this house but there is a possible plan to buy a friends house 6 doors down on same estate for circa £310k as has garage and is a 4 bed detached on 2 floors rather than our four bed detached on 3 floors but with no garage. 

I realise HTB is interest free for first 5 years and after that the interest is small and I know the HTB has to be paid off if we sell the house.

Any suggestions or input appreciated. 

silvercar

To some extent it depends on your view on house prices, if you think house prices will increase, you’d want to get rid of the HTB before it starts costing you a lot more to clear it.

ian1246

Get rid of the help to buy if you can - otherwise the remaining 10% will grow in value as the house increases in value... and that growth will offset any savings made by overpaying your mortgage (since presumably at something you'll have yo pay the help to buy off!)

GMac14

Is it also an option if I overpay mortgage and pay off 10%, if we decide to sell/move, could be we then remortgage for a higher amount to raise £28k to pay off remaining 10% of HTB?

Mortgage would be around £100k adding £28k may mean slightly higher payments but will still be affordable and HTB will be sorted

silvercar

GMac14 said:

Is it also an option if I overpay mortgage and pay off 10%, if we decide to sell/move, could be we then remortgage for a higher amount to raise £28k to pay off remaining 10% of HTB?

Mortgage would be around £100k adding £28k may mean slightly higher payments but will still be affordable and HTB will be sorted

When you sell the HTB is cleared from the sale proceeds. You then take a new mortgage of whatever you need/ want on your new place. Put it another way, selling forces you to clear the HTB.

housebuyer143

Whatever you do, you shouldn't be paying down a loan at 1.99% when you can get around 5% in a savings account.

silvercar

housebuyer143 said:

Whatever you do, you shouldn't be paying down a loan at 1.99% when you can get around 5% in a savings account.

True if the amount owed won’t change. With HTB the amount owed will increase if house prices increase. So a 10% house price increase would mean paying back 10% more.

GMac14

silvercar said:

housebuyer143 said:

Whatever you do, you shouldn't be paying down a loan at 1.99% when you can get around 5% in a savings account.

True if the amount owed won’t change. With HTB the amount owed will increase if house prices increase. So a 10% house price increase would mean paying back 10% more.

So it seems that it makes no difference if I overpay mortgage or save instead, except it makes far more sense to save at 5% than overpay 1.99%. 

The idea behind overpaying mortgage was to bring it down to a manageable monthly repayment if next five year fixed is around 4%, but not overpaying and not moving house would mean leave HTB in place (as would be less interest than new five year fixed) and suspect house prices will not jump up much more if at all for next few years (who knows?!) and can then use savings to reduce next mortgage amount and achieve same result as overpaying would.

Either way, appreciate all comments and a few have pointed out what now appears obvious (but missed by me) that paying into 5% savings makes more sense than overpaying 1.99% mortgage! Also clarifying that HTB has to be paid if we move house helps. 🙏 

HampshireH

Based on what you have said you would also need to factor in any tax owed on interest earned on your savings unless you're saving into an ISA as sounds like they will go over the threshold