Offset Mortgages

[HPC hopeful]

Hi,

We've just agreed to buy a house so now looking at mortgages. We sold our last house and are renting in the meantime. We currently have 40% deposit for the house and were going to go for a 5 year fixed rate with this amount of deposit. However, this will leave us with no savings and therefore no 'cushion' to fall back on. I'm now pondering offset mortgages. Does anyone have any views on whether it would be better to hold aside say, £30k and offset it against a higher mortgage. Using the online calculators it seems we can reduce the amount of time/amount repaid by doing this, even though we are borrowing more. So my question is, are they a good idea and are there any risks with it? Any advice would be appreciated.

[fflump]

the key question is what is the best 5 yr fix rate with/without offset and a 40% deposit?

If the rate on the offset is a lot worse then this will negate any benefit from offsetting savings

[wherebee]

plus what if your lender gets in to difficulties and blocks withdrawals?

I seem to recall that offsets were good for high income / high expenditure people where they might pay in 5 grand salary at the start of each month, but spend it throughout the month, getting reduced interest in dribs and drabs (more than they would have earnt on a standard current account) but not risking anything larger like savings

[HPC hopeful]

Thanks for the advice. I'm now thinking maybe it would be a better idea to do what doccyboy did and keep a lump sum in savings with a view to paying off early as we save. Going to see mortgage adviser on Monday so will have a better idea then.

[GeordieAndy]

I am keeping my savings and mortgage separate and not investing any more in our property (75% LTV) than the repayment mortgage requires as if the crash comes I would rather have savings than it tied up in a depreciating house.

[HPC hopeful]

Just did some quick calculations - it seems the interest we would get on keeping 30k in savings would go a good bit towards the higher repayment for the extra on the mortgage so therefore the bank are practically paying it themselves and the best bit is we get to keep our savings. Sounds like a good plan to me! Thanks guys

[OptimusSubPrime]

Hi Guys,

Im thinking i am about to bid on a house (new build, derry, cityside). Want to get an AIP first though to hopefully strenghthen the chances of my bid and he knows i am in a position to buy. I had been planning on waiting til later in the year, but the house i want has come up at a price that i think isnt far off reasonable, and im hoping to cut a bit off it by making a tempting offer.

I am thinking of going for a 5year fix currently at 5.39%, i only have about 20% deposit at the minute, so im missing out on some of the better rates that id maybe get if i bought a little cheaper or waited longer to get to 25%, but unfortunately the house wont wait that long for me.

Do you think that prior to making an offer is it a good idea to put the offer in writing and put an expiry date on it? i was thining of leaving it dangling over the christmas period in the hope the builder will decide to cash in at a time thats not usually big for house sales.

[Ride_on]

I wouldn't bother with anything fancy, the problem is seller intransigence, they are blind to reality and not in forced selling mode. Developers have come a little way, but prices are still too high IMO. Remember that your deposit will probably disappear in price drops, thats why banks are offering better rates for bigger deposits.

Simply make an offer, it will accepted or rejected fairly quickly, or the EA will try to get you to raise it. If the seller changes their mind later on the EA will contact you to see if it still stands. Then you are in a stronger position and can drive the price down further and are not hampered with any paperwork you have forwarded with expiration dates etc.

You also have to accept that if you really want this house you are in a weak position if you are not prepared to walk away.

[OptimusSubPrime]

I wouldn't bother with anything fancy, the problem is seller intransigence, they are blind to reality and not in forced selling mode. Developers have come a little way, but prices are still too high IMO. Remember that your deposit will probably disappear in price drops, thats why banks are offering better rates for bigger deposits.

Simply make an offer, it will accepted or rejected fairly quickly, or the EA will try to get you to raise it. If the seller changes their mind later on the EA will contact you to see if it still stands. Then you are in a stronger position and can drive the price down further and are not hampered with any paperwork you have forwarded with expiration dates etc.

You also have to accept that if you really want this house you are in a weak position if you are not prepared to walk away.

i was going to just make the offer straight to the builder, as i have had more contact with him aout the house than the EA. The builder actually rang me a few weeks ago to let me know he was adding 3 bed houses ( last feb we had previously looked at the 4bed, but way too big for us and way too expensive). So when i wanted a look around i just called around to see him rather than going through EA, only thing they did was send me a house plan in the post upon request.

we do really want the house, but within reason. I wouldnt be prepared to go the full asking price. Id rather call his bluff and wait a few months if it gets stubborn.

[yadayada]

I am keeping my savings and mortgage separate and not investing any more in our property (75% LTV) than the repayment mortgage requires as if the crash comes I would rather have savings than it tied up in a depreciating house.

......only makes sense if you're planning on skipping the country. You're stiil liable for your mortgage no matter what your house is worth. If you pay off your mortgage you won't be paying interest. The rubbish interest you get these days on your savings even gets taxed. Pay it off is my thought.

[BelfastVI]

There was a good article in the Sunday Times on offset mortgages. Sorry I didn't keep it. Only glanced over it but it concluded that the offset only paid if you had about 40% (I think) of your mortgage value on deposit. Above or below that it didn't pay.

[Ride_on]

......only makes sense if you're planning on skipping the country. You're still liable for your mortgage no matter what your house is worth. If you pay off your mortgage you won't be paying interest. The rubbish interest you get these days on your savings even gets taxed. Pay it off is my thought.

Apparently in the South, disappearing is becoming common for those in huge negative equity. Seems fair to me, banks have had it too easy, not taking any risk.

I also had a bank try to convince me it was profitable to take out a loan to put in an interest paying account, but I was just after a very simple no-fee account. There is usually a catch, you have to remember this is their day job.

On the whole the only point in having liquid savings instead of a lower mortgage is if you plan to spend the savings any time soon, otherwise it is just costing you money to keep the bankers in bonuses.