As was noted, whether the price of the house changes is irrelevant to this decision.
Also as was noted, it's roughly equivalent to increasing the cost of the house by £10K. I think this is helpful, in that it really doesn't matter whether the money is going to tax or to buy the house, it is going.
So, you have an option to reduce your company's cash holdings by £50K, with the benefit that you will have a personal asset of £40K (increased equity). And that asset will be invested in something pretty safe that also gives a pretty good return for a safe investment. The proceeds have two components:
1. 2.54% on the £40K itself. That's how much interest you would have been paying on the mortgage, and you would have been paying it out of after-tax funds, so by not having to pay it, it is tax-free return on investment.
2. 0.2% on the rest of the mortgage. By having a larger deposit, you'll get a better rate on the rest of your mortgage, the other £300K or so. Since this is also reducing the mortgage interest you would pay, it is also tax-free. This is roughly equivalent to another 1.5% on your £40K.
So, your £50K of company money buys you a personal £40K investment paying around 4% tax-free. That's probably not too bad.
One thing you haven't told us -- are you going into the higher rate band every year, or will you have to be to pay the mortgage and live? If so, you aren't really paying extra tax to take the funds now, you are just bringing the tax forward, which means it really isn't costing you £9500, that is tax you would have been paying later anyway to be able to make mortgage payments. On the other hand, if you are staying well below the higher rate band every year, then you might be better taking the bigger mortgage but taking funds up to the HRB and reducing the mortgage rapidly.
One alternate thought. Sounds like you are on a 2 year deal. If you remortgage in two years, then the "life of the mortgage" numbers you gave are irrelevant. All that matters is the difference in equity and the difference in payments for the next two years.
Of course, there's a risk you won't be able to remortgage. Maybe banks will decide they hate contractors as much as HMRC does. Maybe the government will pass a law forbidding banks to offer mortgages to anyone outside IR35. Maybe Brexit will cause wars and banking collapses and Ebola outbreaks and the widespread starvation of little children and the death of all butterflies and (horrors!) even unhappiness among some politicians.
But I'd guess you will be able to remortgage. And if so, possibly due to housing price increases, possibly due to overpayments you've been able to make, you could be a lot closer to 20% equity. Even if not, you could revisit all of this then. In other words, you could just kick this decision down the road until you remortgage. It would cost you £200 / month for the next two years to do that (but obviously, you'd still have your £50K in your company). You might have to decide sooner if they increase the dividend tax again, because if you ARE going to do it you'd want to get your funds out of the company before the "new, improved" (higher) div tax kicks in.
If it were me, I'd pull out the £50K now. I'm old enough to remember when being mortgage-free, and doing everything you could to get there, was a good thing. Debt is fine for everyone else to have if they want, but I hate the stuff. I'd pull out the £50K AND make the higher (£1540/month) payments, personally. I wanted my mortgage to die ASAP. But it seems to me in your case there are arguments to be made both ways, because I hate making decisions that incur taxes almost as much as I hate debt. So it's what suits you best.
Also as was noted, it's roughly equivalent to increasing the cost of the house by £10K. I think this is helpful, in that it really doesn't matter whether the money is going to tax or to buy the house, it is going.
So, you have an option to reduce your company's cash holdings by £50K, with the benefit that you will have a personal asset of £40K (increased equity). And that asset will be invested in something pretty safe that also gives a pretty good return for a safe investment. The proceeds have two components:
1. 2.54% on the £40K itself. That's how much interest you would have been paying on the mortgage, and you would have been paying it out of after-tax funds, so by not having to pay it, it is tax-free return on investment.
2. 0.2% on the rest of the mortgage. By having a larger deposit, you'll get a better rate on the rest of your mortgage, the other £300K or so. Since this is also reducing the mortgage interest you would pay, it is also tax-free. This is roughly equivalent to another 1.5% on your £40K.
So, your £50K of company money buys you a personal £40K investment paying around 4% tax-free. That's probably not too bad.
One thing you haven't told us -- are you going into the higher rate band every year, or will you have to be to pay the mortgage and live? If so, you aren't really paying extra tax to take the funds now, you are just bringing the tax forward, which means it really isn't costing you £9500, that is tax you would have been paying later anyway to be able to make mortgage payments. On the other hand, if you are staying well below the higher rate band every year, then you might be better taking the bigger mortgage but taking funds up to the HRB and reducing the mortgage rapidly.
One alternate thought. Sounds like you are on a 2 year deal. If you remortgage in two years, then the "life of the mortgage" numbers you gave are irrelevant. All that matters is the difference in equity and the difference in payments for the next two years.
Of course, there's a risk you won't be able to remortgage. Maybe banks will decide they hate contractors as much as HMRC does. Maybe the government will pass a law forbidding banks to offer mortgages to anyone outside IR35. Maybe Brexit will cause wars and banking collapses and Ebola outbreaks and the widespread starvation of little children and the death of all butterflies and (horrors!) even unhappiness among some politicians.
But I'd guess you will be able to remortgage. And if so, possibly due to housing price increases, possibly due to overpayments you've been able to make, you could be a lot closer to 20% equity. Even if not, you could revisit all of this then. In other words, you could just kick this decision down the road until you remortgage. It would cost you £200 / month for the next two years to do that (but obviously, you'd still have your £50K in your company). You might have to decide sooner if they increase the dividend tax again, because if you ARE going to do it you'd want to get your funds out of the company before the "new, improved" (higher) div tax kicks in.
If it were me, I'd pull out the £50K now. I'm old enough to remember when being mortgage-free, and doing everything you could to get there, was a good thing. Debt is fine for everyone else to have if they want, but I hate the stuff. I'd pull out the £50K AND make the higher (£1540/month) payments, personally. I wanted my mortgage to die ASAP. But it seems to me in your case there are arguments to be made both ways, because I hate making decisions that incur taxes almost as much as I hate debt. So it's what suits you best.
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