Monthly over payments

[millardus]

Hi folks

I am intending to buy my first property with my wife next year, and what we plan to do is get a property (apartment) for say £210 000, put down a £35000 deposit and then live there for 3-4 years whilst hopefully making major OVER payments.

So, for instance, if we have a £1000 per month mortgage repayment, we would try to overpay by the same amount per month or just over.

I am trying to find out if this amount of overpayment, on a monthly basis, will be allowed by ANY lenders?

I read the following on MSE:

**Thankfully many allow up to 10 per cent annual overpayments without penaltie**

Does this mean you can make 10% over payments of the total Mortgage value? I.E. if my mortgage loan is £175000 at the start (Excl interest of course), can I repay an EXTRA £17500 in that first year?

End result is I want to own most of the flat within 5 years and can then rent it out safely and buy my family home.

Any clarification appreciated folks
M

[IFA]

Hi there,

Most lenders have penalty-free overpayment allowances these days but the way in which this is operated differs slightly. Some offer a 10% concession as you've described, others have a set monthly amount for example £500 per month no matter what the size of the mortgage.

Remember also that these allowance are normally only applicable whilst you are tied in to the initial fixed or discounted rate period, after which you are normally able to overpay to an unlimited amount unless you arrange a new deal for yourself by re-mortgaging or getting a replacement scheme from your current lender.

For those that provide a 10% overpayment allowance this 10% is based on the whole loan amount as you have suggested above, and with most lenders this is re-calculated against the new balance on a yearly basis. So if you start with £175,000 of debt you can pay £17,500 in the first year, but in the second year this allowance is likely to have reduced somewhat (the actual amount of reduction depends on the initial term of your mortgage as this will affect the amount of capital you have paid back in the first 12 months through your normal monthly repayment).

As stated, these things do vary by lender, so the best thing to do is to speak to a broker who can discuss your exact requirements and intentions and select the right lender to suit your needs.

[millardus]

Cheers IFA, that gives me what I was after.

Thanks again.
M

[MidlandsChick]

Yes, I agree, speak to a broker who will be able to assess you needs and help you find the right mortgage product and lender. We are first time buyers and have just secured a 5-year fixed rate mortgage with HSBC which allows us to make overpayments of up to an extra 20% every month without incurring any penalties. However, we did come across a variable rate deal with Britannia which was only for graduates buying their first home (and 2 people or more buying together). The interest rate was much lower than the fixed rates offered by other lenders and you were free to make overpayments with no limit/penalties whatsoever. They also did a free valuation. We decided we wanted a fixed rate in the end, but otherwise we probably would have done with that one.

[Matthew]

One option you may want to look at and consider is an offset mortgage, this tends to be more flexible, with some lenders allowing unlimited overpayments without penalty.