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Offset Home Loan Numbers 'surge'

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Oh dear, where has all that additional "stability" gone now supposedly offered by all those 1 and 2 year fixes.

Offset mortgages can be treated like pure IO mortgages (or worse, borrowing levels can be quietly upped repeatedly).

Offset home loan numbers 'surge'

http://news.bbc.co.uk/1/hi/business/6240286.stm

Last Updated: Tuesday, 26 June 2007, 09:02 GMT 10:02 UK

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Offset home loan numbers 'surge'

Mortgage application forms

Savings can be offset against mortgage debt

The number of offset mortgages has surged in the past year, the Council of Mortgage Lenders (CML) has said.

Last year, 170,000 offset mortgages, worth nearly £30bn, were taken out, a 49% increase over the past year.

Experts suggest that the increased popularity is due to offset mortgage rates becoming more competitive when compared to fixed rate loan deals.

They allow borrowers to offset savings and current account balances against their mortgage debt.

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Offset mortgages are a very sensible product for a lot of people. I don't see anything alarming in the rising popularity.

ANDY

.....yes the higher the interest rates the greater the attraction.....it is virtually tax free income at your current mortgage rate........

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Unless of course people are just offsetting the borrowings that they have elsewhere on CC's and loans and simply diverting them to lone term debts which will costs them a lot of money over a longer time period.

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We've had an offset mortgage for a while now and it has been a very good thing, allowing us to keep a sensible level of readily available savings in case of reduncancy etc. yet also reducing the amount of interest we pay on our mortgage. You might say why don't we simply pay off some of the mortgage, but if we then needed some money (for whatever reason - cars can become uneconomic to repair etc) then we would have to increase our mortgage again.

If we did not have the offset arrangement , we would be paying income tax on the interest from the deposit account and also paying more interest on the mortgage account.

I agree that offsets aren't for everyone. The bank seems to offer an overdraft factility that, if used in full, would result in you borrowing against your mortgage account, AKA MEWing. Also, they are somewhat pointless if you don't actually have any savings.

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Unless of course people are just offsetting the borrowings that they have elsewhere on CC's and loans and simply diverting them to lone term debts which will costs them a lot of money over a longer time period.

Not sure I get your issue here. I would be tempted to get an offset mortgage myself, once I've saved a large enough deposit. You reduce your outgoings, you have easy access to your savings, and they offset tax free against mortgage interest, which is usually higher than most banks savings rate.

How are people offsetting their borrowings? You can only offset savings.

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Not sure I get your issue here. I would be tempted to get an offset mortgage myself, once I've saved a large enough deposit. You reduce your outgoings, you have easy access to your savings, and they offset tax free against mortgage interest, which is usually higher than most banks savings rate.

How are people offsetting their borrowings? You can only offset savings.

I think the points are that

  • the thicker granulation given by fixed rate mortgages is not present with offsets. They are more immediately sensitive to IR changes (particularly worrisome if we had a sudden but short-live IR spike)

  • they can be deployed as IO mortgages as they require more discipline to pay down the borrowing. No doubt some irresponsible users are doing just that

  • indeed, some might allow net borrowing to increase over months and years

So, while they offer flexibility and tax benefits to the responsible and prudent - to the feckless and ignorant they can be rather dangerous instruments.

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Offset mortgages are for those that know the price of everything and the value of nothing.

Like buying a fiat rather than an Audi without factoring in the depreciation values.

Offsets Im afraid are often taken by those who think they are prudent and methodical but the long term outcome is poor value.

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Offset mortgages are for those that know the price of everything and the value of nothing.

Like buying a fiat rather than an Audi without factoring in the depreciation values.

Offsets Im afraid are often taken by those who think they are prudent and methodical but the long term outcome is poor value.

I'm intrigued, please can you explain the logic behind this statement.

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I'm intrigued, please can you explain the logic behind this statement.

.......I would say there was no value in the logic used.........unless I am missing something...let's wait....

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I think offset mortgages would be good, apart from the fact that they don't seem as cheap as fixed rate. If you could get an offset that charged you the same as fixed rate, plus let you offset, you'd be laughing.

Letting your current account reduce the amount you have to pay interest is great. Better than getting less interest on your savings than you're paying on your loan, and also paying tax on your interest.

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to the feckless and ignorant they can be rather dangerous instruments.

Is the point. In the same way IO can be smart if you have a windfall coming your way. Trouble is as FP says - the feckless get on the bandwagon and the gullible get conned.

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I think offset mortgages would be good, apart from the fact that they don't seem as cheap as fixed rate. If you could get an offset that charged you the same as fixed rate, plus let you offset, you'd be laughing.

Letting your current account reduce the amount you have to pay interest is great. Better than getting less interest on your savings than you're paying on your loan, and also paying tax on your interest.

...the fixed rate element is normally only for two years, is usually attractive to suck people in and then a higher variable rate kicks in .....you need to do the sums for the whole period of the mortgage and compare like with like. With a fixed also, there is often a maximum you can pay back without incurring a penalty.

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...the fixed rate element is normally only for two years, is usually attractive to suck people in and then a higher variable rate kicks in .....you need to do the sums for the whole period of the mortgage and compare like with like. With a fixed also, there is often a maximum you can pay back without incurring a penalty.

Yes. I was more talking about they seem good if they are actually what they are described to be. But they aren't.

If they were a fixed rate loan (at a competitive rate) PLUS whatever you have in your current account reduced the amount of loan you pay interest on, that would be great.

Unfortunately all the offsets I've seen, don't give as much interest as a fixed. So even if you have a big current account, you're still paying more.

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One of the good advantages of an offset is they essentially allow unlimited overpayments. You can pay of your mortgage whenever you want by just putting money in your savings account.

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Offset mortgages are for those that know the price of everything and the value of nothing.

Like buying a fiat rather than an Audi without factoring in the depreciation values.

Offsets Im afraid are often taken by those who think they are prudent and methodical but the long term outcome is poor value.

I can appreciate off set mortgages encourage access to equity all too easily for those with a penchant for spending.

However, if the end game is to clear one’s mortgage as quickly as possible, I believe they are a valid instrument.

Mrs Peter & the Wolf is risk averse; this has precluded me from investing in any form of equity based repayment vehicle.

Therefore, rather than opt for a standard repayment mortgage I have opted for an offset mortgage. Of course I pay a 1% premium to the base rate but this is not too onerous as my initial loan was modest by today’s standards.

It has allowed me to simplify my finances. No current account, no savings account, two salaries paid in, child benefit paid in, dividends paid in.

Because interest is calculated daily any reduction in the balance of my loan diverts money due in interest to pay off the principle.

My savings are effectively tax free, which at 40% is helpful.

I have strategically used 0% financial products to expedite the loan repayment

I have dipped into the equity to the tune of £35k for essential home improvements but an overall disciplined approach has enabled me to be debt free in just ten years.

I keep the mortgage going however, never quite paying off the last few hundred pounds, instead diverting repayments to more risky growth vehicles.

I certainly don’t consider I know the cost of everything and the value of nothing.

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I can see the merits of offset mortgages. Indeed, if I had a mortgage I would certainly consider one.

However, what may be driving the recent surge in the amount of offset mortgage debt is the larger number of what you might call formerly 'good credit rating' customers of banks that have suddenly found that they are not able to cover all their bills every month. With an offset mortgage what you can do is effectively use your house as a credit card and then when you get, say, a year end bonus you can pay off a lump sum. Well that is the theory anyway.

The kind of people who will be increasing the balance on their offset mortgae will likely be young professional families who are now struggling but who are still apparently in good jobs,. They were probably just about OK until six months ago but now they have run down their savings and are running up a mortgage debt bit-by-bit each month. The ending of the zero interest offers on credit card transfers probably has pushed a lot of these people to consolidate those credit card debts into offset mortages as well. Its not exactly a subprime problem yet but it is the first step in a much wider phenomenon where even people with quite good jobs are now finding they cannot cover their mortgage plus other spending commitments every month so they are just rolling the interest up on an offset mortgage.

It has to be paid back one day though, and if the value of the house falls that it is secured on then the bank may demand people pay back some or all of these offset mortgages sooner than thay wish. In that case, forecloure is only a few months away and it can quietly creep up on people who regard themselves as being quite financially secure.

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