Should we overpay on the mortgage?

[N12345625]

Hello,
My husband and I have a three bedroom house that we bought about 2 years ago (first time buyers) and was around £200,000 with a 10% deposit.
We are looking to buy a 4 bedroom house in about 7 years time (and after looking in my area, they cost around £450,000).
We have about £8,000 spare in our savings. Do you think it would be a good idea to put that money into paying off some of the mortgage or do you think it's best to leave it in our savings? We have a 5 year fixed mortgage for our current house which is at around 2.2% (I am not sure if that makes a difference). Our mortgage is also 35 years.
Does anyone have any ideas of what we can do now to prepare ourselves for buying a bigger house? Thank you for any help, I am clueless with mortgages!!

I think I would want more than that kept in direct access savings before paying some of the mortgage off, I always have a year of living expenses in a different account.
You sound really sensible though and as you say have jobs that are hopefully one of the last to be affected in a recession.

Yes, as long as you have no other debts to pay off it'll work better for you by paying it off the mortgage.

You can check to see the difference it'll make by inputting your figure into this website

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Your mortgage company should also allow you a payment break if you've over paid should you have any financial difficulties in the future

I have 9 years until retirement so I pay the maximum overpayment every month so I can pay it off in 5.
It's never a waste of money overpaying the mortgage as long as it is within the limits so you don't incur a penalty.

The biggest thing for us was equity.

That's the point though, historically most people move up because of equity. However that's much harder to "earn" for recent buyers

We obviously earned enough to get a 450k mortgage

Your combined income is 100k plus, I assumed the op wasn't in that bracket.

We overpay on our mortgage by about £250 a month - overall it will make a huge difference on the number of years we pay for and the amount of interest we pay back. We recently paid a lump sum off but still had lots in savings so we didn't leave ourselves with nothing.

@showerdodger you are right, we do not earn over £100,000 combined. I am currently part time as I have a toddler and am pregnant with baby number two. By the time we move I will be be working full time and will have a combined salary of about £75,000 give or take.
I guess a bigger house will just be a dream for us :(

Another option that I don't know is possible would be to keep the savings in an mortgage offset account. It depends on the provider and you won't get any interest on the savings but then your provider acts like you have less money borrowed.

I probably have explained that badly but here's a link to Barclays version:

www.barclays.co.uk/mortgages/offset-mortgage/

However, I will point out I've never used one. Not saying it's a good idea for you but it's more info.

Thank you, I will have a look

Well you can hope in 7 yrs your property goes up but obviously that means everything in your area goes up but you could move a bit further away.

Will you have childcare costs to pay as they are a big drain? often even as salaries increase income doesn't.

Not a pipe dream OP.
By today's standards, you could possibly get a up to £360k mortgage over 28 years on the combined salary of 75k (assuming no other debts or major outgoings so I suppose the main thing that could change this is childcare costs).
Based on your figures (some of which are obviously subject to changes in the economy), I estimate you'll have around 55k equity in your home in 7 years' time even WITHOUT overpaying.
Is the 450k asking price for the bigger house? Because they won't necessarily sell for that.
If you overpay by 8k now, it looks like you'll have saved around 1.5k in interest by the end of the 7 years.

But in 7 yrs time the 450k house will go up?

stamp duty too?

Of course. So will the OP's house, if it does. So may salaries; so may interest rates. She can only base calculations on her current reality. Just trying to reassure that it needn't be a pipe dream. The figures will all change to some degree.

Look at you mortgage conditions as you may only be able to pay 10% over at the moment but in a year or so it may be more.Then pay in a lump and when renewing your mortgage reduce the term as much as you can afford to.
No savings pay interest is anywhere near 2.2%.We don't know what will happen to interest rates when this is over so paying down what you can on your mortgage makes the best sense.

Been struggling with this myself.

We aren't looking to move, but a bit spooked by the whole situation now. Had been overpaying about £150 a month, mortgage itself being £550, and was happy with that. Got just about 6 months expenses saved now. We really wanted to pay the mortgage off early, but given the current uncertainty lots of people understandably saying keep your savings in cash where you can access them, because if the money goes on the mortgage you can't get it back. Our jobs are ok in the short term at least but who knows how things will look in 12 months?

But the rates are just soooooo shit! I've had two emails this week from banks telling me they're going to cut the already meagre rates. Hard to know what to do.

I'd certainly advise anyone to have a few months buffer, but it does sound like OP and DH are in a more secure position than most. I think I'd overpay then.

I’m currently over paying £250 a month. My job is ok for now so am going to keep overpaying. If something changes I will stop it

If you can overpay the difference can be massive and worth it

I would sit tight on money in the bank as the post virus time is such an unknown quantity. Or put it where you can get to it if you need it.

May I ask ontheboardwalk, roughly how many months savings do you have? I'm interested to hear what level people feel comfortable with having before they start diverting money elsewhere eg overpayments.

PubsClubsMinistryOfSound I’m fortunate enough at this moment in time to have a good buffer and money coming in

The thing with overpayments is that you can stop them at any time, you don’t commit to them

I started years ago just paying an extra £50 a month and when I came to remortgage it knocked a couple of years off my term. I've been doing it ever since at varying amounts

Yeah I did the same, have always been very much of that view. Only max £150 a month but it's a sub 100k mortgage so it did make a difference. We always felt before this that 4-6 months emergency reserves was fine, as we have low living expenses, lots of skills and insurance. So it didnt matter that the overpayment money was no longer available once we'd paid, as it saved in the long run. Again, the same as you here. Wasn't expecting a pandemic!

Yeah mine isn’t a huge mortgage either, I was really surprised how much difference the overpayment made

If money stops coming in in the current climate I’d stop paying it straight away, even with my buffer, but would start again as soon as possible.

Personally I’d never go below a 6 month buffer but I know people who unfortunately, through no fault of their own, haven’t got a 6 week buffer

Oh of course, it's a very fortunate position to be in to have surplus income.