Offset Mortgages

[MrCake]

If I have a £300,000 mortgage and keep £100,000 in an offset account, is the effect on the total mortgage interest and term the same as if I repaid £100,000 and reduced the mortgage to £200,000?

[Meatyfool]

Do you currently have an ordinary rather than offset mortgage?

Especially if you are a higher rate taxpayer they are a no brainer.

In answer to your question then basically yes BUT putting savings into an offset mortgage means you can pull them out again.

Paying 100k off an ordinary mortgage it is gone and you have to rearrange the mortgage to get it back again.

I still have a (virgin) one account but I paid the mortgage 10 years ago.

One of the best financial products I ever bought.

Meatyfool..

[MrCake]

Thanks. Yes I do have an offset at the moment. The reason for my question was that my wife keeps nudging me to use some of the cash to make a mortgage repayment, but I tell her it's just the same if we keep the cash in the offset account, plus we have flexibility to use the cash if we want to. I started to doubt if I was right, thought I might be missing something.

[Pheidippides]

Hi Mr Cake,

I'm in the same boat. I have my £250K Woolwich mortgage offset by £200K in cash and £50K in mine and Mrs Pheid's ISA.

Now Eldest Ms Pheid is looking to buy a property and I'm in a position to help her, but only because I have the funds readily available. Mathmatically there is absolutely no difference between a fully-offset and a paid-off mortgage excepts a) you lose the flexibility and b) your lender might make you take delivery of the deeds

Regards

Pheid

[MrCake]

Thanks Pheid,
we too have several things that we might want to use the cash for so I am glad I can stop worrying about this now. I have lots of other things I want to start worrying about instead!

[Philanthropissed]

AFAIK, if you have £250K in an offset account against a £260K mortgage and your Bank or Building Soc goes bust, you cannot get the Investor Protection on the full amount of the Offset Deposit, so you may lose a chunk of your offset deposit, but still have the full mortgage debt !

[Roobarb64]

I agree with Meatyfool,

I have a Virgin One account that now has a small positive balance and will keep it for as long as the product exists.
RBS had a good go at ruining it a few years back but it's still the best financial product that I've ever bought.

Also, as the V' One doesn't have separate pots for your debts and savings (hence the "One" in its name) then I'm pretty sure it also avoids falling foul of Philanthropissed warning.

Roobarb

[peka]

Philanthropissed, you wrote:

"AFAIK, if you have £250K in an offset account against a £260K mortgage and your Bank or Building Soc goes bust, you cannot get the Investor Protection on the full amount of the Offset Deposit, so you may lose a chunk of your offset deposit, but still have the full mortgage debt !"

I believe you are wrong about that. I had a similar concern a few years ago about my offset mortgage, so I wrote to the banking regulator. They replied with words to the effect that I would only be at risk for the difference between the mortgage debt and the offset deposit.

[DrBunsenHoneydew]

If you offset more than £85,000 of savings against your mortgage, or £170,000 if it’s a joint account, and your mortgage provider fails, any amount over those FSCS limits will be used to reduce your mortgage debt.

If the mortgage/loan and deposit accounts are flexibly separate but combined within an offset wrapper, FSCS would pay compensation on the savings element up to the limit of £85,000 and the remainder would automatically be set-off against the amount owed under insolvency law.

So for example, if a single person's outstanding mortgage totalled £150,000 and they had linked savings of £95,000, they would receive £85,000 in compensation and the remaining £10,000 of savings would automatically go towards paying off the mortgage.

However, if you have a current account mortgage, whereby a deposit account is combined with a mortgage account and operated as one large overdraft, the FSCS would have to treat it as money owed and you aren’t entitled to any compensation.

[lisyloo]

I believe there is a difference if you needed state benefits.
In the offset case you'd be judged as having £100K assets and in the repayment case £0 assets (assuming you have no other assets - but YKWIM)

If you are both working and it's unlikely you'd be able to claim benefits then this is a moot point, but with benefits you cannot do anything at the last minute.
Moving £100K the day before you claim benefits would be classed as "deliberate deprivation of assets".
Doing it a couple of years before may just be part of your general financial planning.
AFAIK there isn't any particular deadline, but often recent statements are requested so doing things last minute would be seen.

Hopefully a moot point for you but AFAIK this anomaly still exists unless anyone knows otherwise?

I am stoozing my entire (0.74%) mortgage. making a profit and have the line of credit open should I need the money.

[pochisoldi]

Moving £100K the day before you claim benefits would be classed as "deliberate deprivation of assets".
Doing it a couple of years before may just be part of your general financial planning.

Using £100k of your own money to pay off part of your own mortgage is not depriving yourself of an asset, and is the kind of action you may take when doing financial planning in the light of a change of circumstances.

PochiSoldi