Offset Mortgages

[GreenerGrass]

The interest rate gap seems to have narrowed, but comparing something like a Woolwich Offset mortgage account with a Nationwide 3 year tracker, offsets still have rates that are at least .35/.4% higher.
The comparisons they give for offsets are a bit woolly, as the illustrations always assume your conventional mortgage is of the same rate, and that you'd otherwise put savings in a taxable account.
Then again I suppose you save money by not having to pay fees every three years or so, and the hassle of proving contractor income each time if lending rules tighten up.
The other thing is I make overpayments now with a conventional mortgage, although they are capped. I think I'd be encouraged to make larger overpayments if they were unlimited. This would be one of the biggest factors in paying off the mortgage early - rather than waiting 3 years to pay off a big lump (with a conventional mortgage), then suddenly getting distracted and spending the money on a new 911 Carrera S.

People with offsets, are you better off despite the higher rates?

[slackbloke]

The interest rate gap seems to have narrowed, but comparing something like a Woolwich Offset mortgage account with a Nationwide 3 year tracker, offsets still have rates that are at least .35/.4% higher.
The comparisons they give for offsets are a bit woolly, as the illustrations always assume your conventional mortgage is of the same rate, and that you'd otherwise put savings in a taxable account.
Then again I suppose you save money by not having to pay fees every three years or so, and the hassle of proving contractor income each time if lending rules tighten up.
The other thing is I make overpayments now with a conventional mortgage, although they are capped. I think I'd be encouraged to make larger overpayments if they were unlimited. This would be one of the biggest factors in paying off the mortgage early - rather than waiting 3 years to pay off a big lump (with a conventional mortgage), then suddenly getting distracted and spending the money on a new 911 Carrera S.

People with offsets, are you better off despite the higher rates?

Yeah I think so, I don't waste time with having to save/invest money and don't get taxed on any investment. The money's there if I need it and psychologically it is encouraging me to work harder at paying it off. I think it suits a contractor, probably wouldn't do it I was a permie.

[Lewis]

I've had a First Direct offset for years and I love it. In particular:

1) I pay dividends and salary up to the 40% rate so all extra bank interest would be taxed at 40% if I didn't have an offset. This means I effectively get 7.55% tax free interest on my money (8% when my fixed rate deal ends and I move to the current 6% variable mortgage rate - of course I might fix again).

2) I borrowed way more than I needed so I have a huge emmergency fund which is absolutely free, so no worries about being out of work, ill etc..

3) Whenever I get a big chunk of money I just plonk it into any one of my many accounts which are all "linked" to my mortgage. It immediately starts earning for me. Having lots of accounts just makes it easy to organise funds (e.g. a holiday account, school fees account etc..).

4) I could chose to not pay my mortagge for years if I wanted. All that would happen is the balance would increase.

5) I even have the mortgage split across two accounts, one with a fixed rate and one with a variable rate. Depending upon base rates I can move money between the accounts to either have a fixed or variable rate (limited to 1% above Bank of England base) mortgage. No arrangement fees or anything when I switch ...

6) First Direct offsets have recently been topping the fixed rate league tables in Guardian Money so it is not even more expensive than a 'normal' mortgage anymore.

7) I have an instant personal loan whenever I want it at a great rate. No forms, no hassle just 10 sec internet transfer if I need a new car.

8) First Direct have truely amazing customer service.

I can't fault them.

[Moscow Mule]

They are not so good if you plan to leave a lot of money in your company and extract using Entrepreneurs Relief at a later stage.

They are great if you bleed your company to the max every year.

[Lewis]

They are not so good if you plan to leave a lot of money in your company and extract using Entrepreneurs Relief at a later stage.

They are great if you bleed your company to the max every year.

The amount you leave in the company is completely irrelevant. Even if you don't completely fill up your <£40% tax allowance each year you are still getting tax free interest and all the flexibility provided by the facility.

But you want to take dividends up to your 40% limit anyway as 0% tax is better than entrepreneurs relief!

[Moscow Mule]

The amount you leave in the company is completely irrelevant. Even if you don't completely fill up your <£40% tax allowance each year you are still getting tax free interest and all the flexibility provided by the facility.

But you want to take dividends up to your 40% limit anyway as 0% tax is better than entrepreneurs relief!

Hence the "not so good".

I may have given the wrong impression in my post, I had an offset with the Woolwich when I had a mortgage. It was good.

[b0redom]

They are not so good if you plan to leave a lot of money in your company and extract using Entrepreneurs Relief at a later stage.

They are great if you bleed your company to the max every year.

I thought the Entrepreneurs Relief loophole was disappearing, either that, or hector will take a distinctly dim view of you closing one company, and then opening a new one doing the same thing soon afterwards....

[Archangel]

I thought the Entrepreneurs Relief loophole was disappearing, either that, or hector will take a distinctly dim view of you closing one company, and then opening a new one doing the same thing soon afterwards....

No (1 million lifetime limit though), and yes I think Hector will object to the relief on a 2nd and subsequent company

[moorfield]

.
They are great if you bleed your company to the max every year.

They're also great if your builder bleeds you to the max every year.

[s2budd]

Offset Mortgages

First Direct Offset Mortgages - Agreed. There great.
I've paid mine off (well almost) in double quick time since moving to an offset with First Direct. I find that it's a bigger incentive to get the amount down when I have control over the amount that I can pay into the mortgage account. Certainly the way to go for contractors.