Your wife-and you are not that badly off. Read some posts from people struggling with little or no income, and negative equity of 100,000's etc. They would love to have savings like you as they buy you options and time. You cant just decide that you would prefer to put the money to something else that suits you better.
Anyway, unless there is something we don't know, with a baby on the way, you and your wife should keep up the full repayments of 1700. Based on your timeline for moving in 2yrs, that equates to 12,000 (500 x 24), some or all of which is capital. This still leaves you with combined cash of 33,000 to go towards any shortfall on the mortgage come sale time.
Alternatively, sell the house now, settle up with the bank and rent somewhere cheaper than 1200pm. Then you can build up some savings again to help with the relocation. But with the baby on the way, and currently no bank hassling you or your wife, staying put seems a far better course of action.
It is important to bear in mind that you have no liability to the bank should your wife not be able to pay at a future date-but it is your home too, so with so little negative equity, paying seems the best option. As stated already, your wife could ask for a capital holiday but that won't leave you both any better off come sale time.
Finally, while you say you do not want to defraud the bank, in your first post you did ask for advice on how to hide money from them. If you did that, the financial information given to bank would not be truthful. The bank would consider that fraud!