RICHARD AND SUSIE have a house worth £160,000. They have a £47,500 interest-only Northern Rock mortgage. It is on a two-year fixed rate until next March. They have savings, including deposit, Isas and Peps, which could pay off the mortgage. They are thinking of moving to a larger property worth about £300,000. Are there any benefits in paying off the mortgage (and becoming in effect first-time buyers when they move) or would they be better off keeping it?
Cath Hearnden, of Hearnden Associates, says: If Richard and Susie pay off the mortgage now they do not become first-time buyers when they move as far as mortgage lenders are concerned because they have already owned a property and have had a recent mortgage. It is also advisable to keep deposit savings intact as an emergency fund.
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Peps and Isas are medium to long-term investments. If they have to start this type of investment again they may lose the benefit of having paid into them for a number of years. If Susie and Richard initially took them out to repay the mortgage they could use them to clear the debt. However, if they are intending to move house in the near future they should consider whether they will want to use these investments to support a new mortgage.
The Peps have been invested during highs and lows in the stock market and they may wish to consider if and by how much they are in profit before they consider cashing them in. The question of whether to continue to use their investments as a repayment vehicle needs careful consideration and a review of their current attitude to investment risk and reward. They should consult an independent financial adviser if they have questions about this. Hearnden Associates: 0800 9530592
Chris Galpin, of Savills Private Finance, says: Richard and Susie’s main constraint in moving is that they are tied into their mortgage with Northern Rock until April. If they move to another lender before then, they will incur severe penalties of about £1,425.
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This does not mean that they cannot move because Northern Rock may agree to let them “port” their current deal to a new property, assuming the lender agrees to the new level of borrowing. Northern Rock is unlikely to lend them more than 3.8 times joint income, resulting in a loan of £174,800, unless they have a high credit score. Once this is added to the profit they will make from the sale of their property and allowing for the couple’s moving costs, they will need to clear about £26,000 of current borrowing to afford a £300,000 home. They should consider cashing in this amount of their worst-performing Peps after they have exchanged on the purchase to cover this.
Their existing £47,500 mortgage could be ported to the new property at the same fixed rate as before, with the extra £127,300 they need on a new fixed rate of 4.69 per cent for two years. Once their current £47,500 deal expires, Northern Rock should offer them another competitive rate from their range at the time.Savills Private Finance: 0870 9007762
LORNA BLACKWOOD
FANCY A MORTGAGE MAKEOVER?
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