The long march to a Mortgage Free Future/Larger Forever Home

ian1246 · 13 May 2018 at 12:57AM

Hi Guys.
I ve been lurking on these forums for a little while now, I've read lots of very useful advice. I was wondering what everyone's thoughts are regarding which option is best?

Little bit of information on my personal circumstances:

Myself and my partner are getting married in August 2018. We currently own a 3bed semi-detached house - brought November 2015 for £165,000, haven't had it valued since - but Rightmove puts it between £180,000-£184,000 (Next cheapest house on our cul-de-sac sold for £178,500 in January 2016... with several others £185,000+ since then)

I m 29, partner is 26. We currently have no dependents - although we plan to start trying for kids when my partner turns 29 (2021).

Remaining Mortgage: £116,418 (31st December 2017) - using Excel, this will by now be somewhere in the region of £115,216 (May 2018). Mortgage due to finish November 2040.

Mortgage interest - 2.84%. Fixed until November 2020.
Normal Mortgage Monthly Payment: £577.49

- Combined CurrentTake Home Income: £2727.39 per month
- Future Combined Take Home Income by July 2021: £3215.49 per month (4 Annual Increments left for my full salary!) - excluding Future NI & Tax Changes & partner one day going part-time (when we have kids).

- Wedding Savings: £450.00 Per Month (This will be freed up by August 2018 to go towards new house/overpayments)
- Personal Savings: £400.00 Per Month (£200.00 Each) - for holidays/financial buffer/mortgage overpayment.
- £180.00 per month Fuel (2 Cars).
- £120.00 per month MOT/Car Insurance/ Emergency Savings.

- Contact Lens Subscription: £13.00 per month.
- Mobile: £43.81 per month (2 mobiles).
- Monthly Window Cleaning: £8.00 Per Month.
- TV Licence: £12.50 per month.
- House Insurance Savings: £13.50 per month.
- Water/Sewage: £40.50 (building up a gradual surplus of credits)
- Electricity/Gas: £74.00 (building up a gradual surplus of credits)
- Sky: £39.20 per Month
- Amazon Prime Subscription: £7.99 Per Month
- BT Phone/Internet: £36.99 per Month.
- Council Tax: £130.00 Per Month.
- Dog Insurance: £29.93 Per Month (2 2 year Old Border Collies).

- Food: £250.00 Per Month (including food for 2 Border Collies, 2 Chinchilla's, Snake & Taranatula). Any Surplus goes towards Disposable Income.

Total Budgetted Expenditure (Excluding Wedding & Personal Savings): £1,576.91.
Total Budgetted Savings: £850.00
Current Take Home: £2727.39 per month
"Spare" Disposable Income (For Socialising/Entertainment/further savings etc...): £300.48

Current Non-Mortgage Debts: We both have Student Loans (Pre-2010 i.e. Plan 1), but no other debts.

Current Financial Reserves (excluding Wedding Savings): £2000 - these would have been at £6,000.... but our back boiler decided to die and had to be replaced with a modern one in January 2018, then my Car had 2, seperate serious faults develop this month, totaling £500 (& due back in the garage for more work on Thursday!) to fix.

##########

Essentially the last 14months have been entirely consumed with planning and saving ready for our wedding/Honeymoon in August 2018 - unless things go catastrophically wrong, the wedding will be fully paid for with no additional debt.

With this so close - its time to start planning for the future....

Myself and my partner eventually want to have a 4 bed detached house in the countryside - currently this sort of house in the area we want ranges from £230,000+ (Needing Significant Modernisation) with most hovering between the £280,000-£330,000+ mark.

I ve done a bit of future budgetting - if we overpay the mortgage, factoring in my partner giving up work for 12months to have a child around about in 2021 and then only returning to work part-time (she works full time currently), we should be able to pay off the mortgage by June 2029 - this is with both of us over that same period saving £37,200 (Personal Savings) between us, which could go on things like Holidays, House-Improvements/Unplanned Emergencies etc....

That, assuming my current 2.84% Interest Rate applies for the rest of the period, would yield Interest Savings of £23,328.21 & the mortgage being paid off 10years 6months early.

However: Between now and 2029, House Prices are likely going to continue to rise. Even assuming a modest average 2.5% Annual Price rise, that means realistically the sort of house we want could easily be between £302,000+ (previously £230,000) to £433,000+, whilst our own house would only be around £236,000.

Right now to buy a house at the low end (£230,000) we would likely need to only take out an extra £50,000 Mortgage (£230,000-£180,000=£50,000 Difference), whilst at the high end (£330,000) an extra £150,000 Mortgage.

By comparison.... in 2029 assuming a 2.5% Average Price Increase: At the low end a further £66,000 mortgage (£302,000-£236,000=£66,000), whilst at the high end (£433,000) an extra £197,000 Mortgage - an increase of £16,000 & £47,000 respectively vs. 2018 Mortgage levels - against which overpaying the mortgage would save us around £23,300 in Interest (vs. if we just kept it full term).

So with the above in mind - whats the best path to get to where we want to be? Do we seek to Overpay the Mortgage and aim to buy a new property (our "forever home") in 2029 (if all goes to plan), using the equity from our current house as a substantial & large deposit (meaning our mortgage would be reasonably sized)....

.... or we do we save up a financial-reserve to cover the costs of moving (Stamp Duty, Solicitor & Estate Agent Fee's etc....) and look to try and move in the next year or 2 - taking on a substantially larger mortgage (with all the potential negative/risky implications!), but at the same time: Reaping the benefits of the increased house value in the long run- and, of course - enjoying what would hopefully be our "forever" home.

What are your thoughts/suggestions? I m very much aware that the next few years are when myself and partner can make a real difference to our future financial wellbeing/security, due to not yet having dependents - I m just completely torn on what the best path to take is :eek:

System · 13 May 2018 at 2:14AM

Simple maths. If you can get a higher return on your money investing it than the mortgage interest rate you invest it elsewhere and then use it towards the deposit when you get your next home. If you can't get a better return you overpay the mortgage. That is making your money work the hardest.

newgirly · 13 May 2018 at 2:53AM

I don't think anyone can easily answer this question as it really boils down to house price rises and how much risk you are happy to take borrowing more now.

Aside from the financial implications of moving sooner there are other factors to consider - buying a do-er upper might be a less challenging proposition before you have the kids - more time , definitely more money to go round :rotfl:

My personal experience is we stretched ourselves to the limit to buy a three bed terrace in a great area in outer London, we thought we would do a bit of work on it and move up to a bigger house quickly, it never happened as prices shot up massively. I'm glad we went up to our limit to get the nicest house we could afford, we are now happy to stay here and have extended upwards.

Best of luck!

ben501 · 14 May 2018 at 10:15AM

Personally I'd opt for Tarambor's option.
Overpaying also has the advantage that the money is 'spent', whereas if you put it in a savings account you could be tempted to take some out & spend it.

Then again, if you put it all towards overpayments you may not have enough for an 'emergency' or two.

Lumina · 14 May 2018 at 11:30AM

We had exactly the same discussions, to the point where we mapped out future house price increases vs our savings rate - much like you have done. We couldn't make up our mind and decided to save as much as we could for a while, lived on mainly one income and saved £40'000 in 2 years (while paying over £1000 a month in child care :eek:).

We got to the point where we could have been mortgage free in 2.5 years, but much like you we wanted to live in a different location. And it was all about location for us as we could have extended our current house. In the end we looked into renting to live in the location we wanted to be in - only to find that rental costs would have been 200ppm more expensive than a mortgage. And that's in the end what helped us decide. We're in the process of buying our "forever home" exactly where we want to be, with a mortgage figure that is too big for my liking, but with a very long term so that monthly payments that are very reasonable & affordable. We expect our quality of life to be better as a result of the move and be able to put down roots, rather than live in a temporary stop-gap, that doesn't feel like our home, while waiting for (the illusive) date X when you finally have achieved every step of the plan to justify the move.

One final word of advice: You might struggle to get a very large mortgage with a reduced income + child care cost. And how would your plan cope if you ended up with twins in 2021?

ian1246 · 17 May 2018 at 1:13AM

Thanks for the replies guys - lots to think about on whether to Overpay or save for a new house :-)

Essentially if we Overpay the Mortgage, we ll have overpaid £16,150 between December 2018> November 2020 (when our fixed mortgage rate expires) & have somewhere in the region of £11,500 in personal savings.

Alternatively, after doing a bit of maths - if instead we save and use a combination of TSB Current Account (5% Interest), Nationwide Flexi Regular Saver (5% Interest) & Tesco Current Account (3% Interest, up to 2 each) we could save around £15,900 in the "Joint" Accounts and have a further £13,300 in personal savings.

Granted, from those "personal" savings I'd like to do the following:

- Replace around half our double glazed windows (Frames Distorted/Seals gone - all windows are 15-20+years old) on our 3 bed semi, potentially replacing all of them if there is a good enough offer.
- Replace our old sliding patio door with a set of modern double-doors.
- Replace the old Backdoor (single glazed!) with a modern double glazed door with better security.
- Replace the original internal doors (1975 build!) with some nice modern pine/oak doors, preferably fitted properly - unlike the current draughty one's!
- Paint the whole house in modern colours (currently all wall papered and old-fashioned looking).
- Pay for our 2019 Holiday.
- Pay for our 2020 Holiday.

So.... all told, by November 2020, its more likely to be £5000-£8000 in Personal savings :-)

Still.... lots to think about! I am very tempted to start overpaying the mortgage though (simply since it saves the "hassle" of managing so many bank accounts/regular savers which is what is required to save with a decent interest rate in this day & age!).

shangaijimmy · 17 May 2018 at 7:57AM

My advice is stretch yourselves to buy the forever house now whilst you have no dependents and get through the first 2 years of finding your feet. It will get much harder once kids arrive, especially in the first few years as money can literally seep out of your accounts! That's how we did it, and i couldn't imagine the logistics of trying to move now that we have 3 under the age of 9! Difficult decisions but nice to have the choices, so well done for the position you have got yourselves in at such a young age.

enjoyyourshoes · 17 May 2018 at 8:15AM

if overpaying just ask the q , what is the early repayment charge and how much can i overpay w/o attracting this charge

ian1246 · 18 May 2018 at 12:17AM

enjoyyourshoes wrote: »

if overpaying just ask the q , what is the early repayment charge and how much can i overpay w/o attracting this charge

Have checked it :-) - I can overpay a maximum of 10% of the remaining balance (as of the 01st January each year) before incurring charges. Thanks for raising that point :beer:

On the plus side: *Hopefully* my car is now fixed (need to drive it a bit more to be sure), costing me only £40.00 of the £164.00 I had budgetted for it - extra £££'s to go into the saving pot!

enjoyyourshoes · 18 May 2018 at 7:52AM

Some lenders will also allow you (post overpayment) to keep the original monthly payment the same, thus by default overpaying more than the 10% of balance at anniversary date. If so don't reduce the monthly payments if they ask.

Fab10 · 18 May 2018 at 2:40PM

So I am in a similar boat myself - Save or over pay.

At this moment I am more inclined to Overpay the mortgage as having the money in savings is not going to give me as much interest and I would save alot more with reduced interest due to the over payments.

As far as buying the forever home is concerned if you see something then get it now so that by 2021 you will be already in your forever home as shopping for a new home and kids and doing up your home is all too much at the same. So if you can then in the next 2 years move out and use the large amount paid off current home as deposit for new home.

The long march to a Mortgage Free Future/Larger Forever Home

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