Reply to: Offset Mortgage Info Required

[MarillionFan]

That musta hurt having to say that twice!

My head hurts. That bottle and half of wine to help me concentrate in the last two hours seems to have back fired. Fook it.

[SimonMac]

Thanks for the help there. . My brain is fried, been at is since 8am and trying to pull an all nighter on a really complex data model so not really focussed outside that at the moment, but that is my point.

I was lucky, I took an offset at 6% about 7/8 years ago and kept it when I moved. I had equity and another BTL property which I sold. When I moved I bought a place for £500k. I had £250k at the time, but only put down £75k, keeping the remaining £175k in the offset. Since then the interest rate has dropped and I've managed to move the equity into accounts/investments paying 5%(after tax/or tax free). So I still have a £425k mortgage at 1%, the house has gone up somewhat and I have £350k invested.

To your point about locked interest, you are of course 100% correct. But those interest rates are going to have to rise some before I'm fooked & when they do, I can take a penalty on the interest and still be ahead.


I will always recommend an offset to those who know how to use a spreadsheet :-)

That musta hurt having to say that twice!

[MarillionFan]

Your advice here is to use the savings that would have been taken out as a mortgage to find a better interest rate else where, which is a good idea if you have the discipline to stick to it, but its not an offset which was the OP's question.

With your plan you also have to think what if? What if interest rates shoot up, you mention an ISA for £10k, your money is usually locked in for 5 years, where most fixed rate deals are two years, three if you are lucky. What do you do in the two years time when rates go back up to 5-6%?

Thanks for the help there. . My brain is fried, been at is since 8am and trying to pull an all nighter on a really complex data model so not really focussed outside that at the moment, but that is my point.

I was lucky, I took an offset at 6% about 7/8 years ago and kept it when I moved. I had equity and another BTL property which I sold. When I moved I bought a place for £500k. I had £250k at the time, but only put down £75k, keeping the remaining £175k in the offset. Since then the interest rate has dropped and I've managed to move the equity into accounts/investments paying 5%(after tax/or tax free). So I still have a £425k mortgage at 1%, the house has gone up somewhat and I have £350k invested.

To your point about locked interest, you are of course 100% correct. But those interest rates are going to have to rise some before I'm fooked & when they do, I can take a penalty on the interest and still be ahead.


I will always recommend an offset to those who know how to use a spreadsheet :-)

[SimonMac]

Your advice here is to use the savings that would have been taken out as a mortgage to find a better interest rate else where, which is a good idea if you have the discipline to stick to it, but its not an offset which was the OP's question.

With your plan you also have to think what if? What if interest rates shoot up, you mention an ISA for £10k, your money is usually locked in for 5 years, where most fixed rate deals are two years, three if you are lucky. What do you do in the two years time when rates go back up to 5-6%?

[SimonMac]

That's not correct.

If you do the maths(like me). An offset is more beneficial than a fixed rate if you have 25% of the equity in the offset. Why? Because the best fixed rates deals are normally about 25% cheaper than the equivalent offset.

(as I get half way through this reply I'm going to stop)

Actually you're reply makes no fricking sense at all?

But if you don't have to get a mortgage out in the first place (I read the OP has 100% of the purchase price in cash) then any intrest, preferential or not is worse than paying no interest?

[MarillionFan]

Long story short, an offset only works to your advantage when you use your savings to defer the interest on a portion of the mortgage, if you have the cash out right you won't be paying any interest so you won't save anything, best case is that you still have access to a lump sum of cash in case you need it in an emergency.

That's not correct.

If you do the maths(like me). An offset is more beneficial than a fixed rate if you have 25% of the equity in the offset. Why? Because the best fixed rates deals are normally about 25% cheaper than the equivalent offset.

(as I get half way through this reply I'm going to stop)

Actually you're reply makes no fricking sense at all?

[SimonMac]

Long story short, an offset only works to your advantage when you use your savings to defer the interest on a portion of the mortgage, if you have the cash out right you won't be paying any interest so you won't save anything, best case is that you still have access to a lump sum of cash in case you need it in an emergency.

[IR35FanClub]

Ah thanks for the advice, some good info there. I hadn't even considered a self build. I did look in to it a few years ago as I know somebody else who did it. I didn't realise you could reclaim the VAT!

If I've got you interested in self build, and you want to get a good overview take a look at The Housebuilder's Bible (9th Ed) and Building Your Own Home (18th Ed). For £30 you can potentially save your self thousands in mistakes - especially when it comes to their plot buying advice. I first bought them in 1999 and it's taken me till now to get round to building something! LOL. They go about the different ways of self building - like turn key, or you as PM, or you as labourer. If you are working as a highly paid contractor though - its probably best you go off to work and earn the money to pay the professionals ;-) Stick to building Ikea flat packs when its finished. Though burglar alarms/Z Wave automation and hardwired gigabit ethernet might be something you want to get involved in.

[swebb]

WNLS.

I had a specific issue I needed to get sorted once - wanting to buy one house before I sold the previous. Went to see an independent advisor - a proper one not one tied to specific products. He advised us to get an offset - which worked out well - bought the new house with minimal deposit on offset. Once we had done the decorating and moved in, sold the old one, and transferred the equity into the offset. Any non offset product would have horrendous early repayment figures. So you could do both.

You might find offsets are usually more expensive than a standard mortgage though i.e the % rate is higher, so you'd be best having a small traditional repayment mortgage and keep a few 10's of thousands in a rainy day fund. If you have anything over 50% Loan to Value you'll get the best rates possible as you are such a low risk.

It sounds like you need to do some number crunching with spreadsheets to work out what you'll have in your accounts in 5/10/20/25 years if you do the offset VS paying for the house and then start saving from scratch and then look at that compared to having a standard mortgage. My spreadsheet had all the initial costs of the mortgage, the monthly payments and any final payments. You can then work out the total cost of the mortgage over the term. And see how that compares across different products. Don't forget you'll lose a lot in fees - which won't be there if you pay cash for a place. And then start saving.


I looked at offsets this time around but the maths didn't work out - it ended up about £30 a month more on a loan of £150k. And 10 years from now - the saving / debt situation situation was better with a normal repayment which ever way I chopped it up on initial and monthly payments. I came to the conclusion offsets are only really useful to a select few and not the great money saver we all think. If you can find one with a low % rate it might work out.

Lastly - if you have that much saved have you considered self build? Self build - as in you specify it, not actually build it. You can buy a plot of land just below the stamp duty threshold, then get something new built and reclaim all the VAT at the end. (keep the receipts). Say if you have £250k, spend £125k on the land, £125k on the house - you'll end up with a house worth about £300-£350k. Or more. It doesn't have to be a grand design, something with 4 walls and a nice internal floor layout from one of the package companies will have a fixed cost. Have a look at Custom architecture home plans, timber frame homes and more... for the sort of thing you can get as a package. Declaration - I have no ties with them, just I know they've been around for many many years and have a lot of designs that appeal to UK buyers. I think they give indicative costs of around £1000/m2 of floor area. But that can vary a bit, but useful as a rule of thumb. The best way to get a plot is find a house with spare land at the side/rear, and then split the plot - which is what I've done ;-). Just don't mention what you are intending to do whilst viewing!

Ah thanks for the advice, some good info there. I hadn't even considered a self build. I did look in to it a few years ago as I know somebody else who did it. I didn't realise you could reclaim the VAT!

[MarillionFan]

Virgin Money (Northern Rock) and Nationwide will consider a next day remortgage. Each application is underwritten on a case by case basis. As Marrillion Fan says though, the majority of lenders are not keen for this type of lending and the general rule is 6 months.

Really? Feck it just had to wait six months.

[Martin@AS Financial]

Yes, but not for at least a minimum of six months after the purchase due to money laundering rules.

Virgin Money (Northern Rock) and Nationwide will consider a next day remortgage. Each application is underwritten on a case by case basis. As Marrillion Fan says though, the majority of lenders are not keen for this type of lending and the general rule is 6 months.

[MarillionFan]

No you can always take out a loan out later.

How Do You Release Equity in a House that the Mortgage Has Been Paid Off?

Yes, but not for at least a minimum of six months after the purchase due to money laundering rules.

[BlasterBates]

If I pay for the property outright then in my mind the money is gone, its now bricks.

No you can always take out a loan out later.

How Do You Release Equity in a House that the Mortgage Has Been Paid Off?

[IR35FanClub]

WNLS.

I had a specific issue I needed to get sorted once - wanting to buy one house before I sold the previous. Went to see an independent advisor - a proper one not one tied to specific products. He advised us to get an offset - which worked out well - bought the new house with minimal deposit on offset. Once we had done the decorating and moved in, sold the old one, and transferred the equity into the offset. Any non offset product would have horrendous early repayment figures. So you could do both.

You might find offsets are usually more expensive than a standard mortgage though i.e the % rate is higher, so you'd be best having a small traditional repayment mortgage and keep a few 10's of thousands in a rainy day fund. If you have anything over 50% Loan to Value you'll get the best rates possible as you are such a low risk.

It sounds like you need to do some number crunching with spreadsheets to work out what you'll have in your accounts in 5/10/20/25 years if you do the offset VS paying for the house and then start saving from scratch and then look at that compared to having a standard mortgage. My spreadsheet had all the initial costs of the mortgage, the monthly payments and any final payments. You can then work out the total cost of the mortgage over the term. And see how that compares across different products. Don't forget you'll lose a lot in fees - which won't be there if you pay cash for a place. And then start saving.


I looked at offsets this time around but the maths didn't work out - it ended up about £30 a month more on a loan of £150k. And 10 years from now - the saving / debt situation situation was better with a normal repayment which ever way I chopped it up on initial and monthly payments. I came to the conclusion offsets are only really useful to a select few and not the great money saver we all think. If you can find one with a low % rate it might work out.

Lastly - if you have that much saved have you considered self build? Self build - as in you specify it, not actually build it. You can buy a plot of land just below the stamp duty threshold, then get something new built and reclaim all the VAT at the end. (keep the receipts). Say if you have £250k, spend £125k on the land, £125k on the house - you'll end up with a house worth about £300-£350k. Or more. It doesn't have to be a grand design, something with 4 walls and a nice internal floor layout from one of the package companies will have a fixed cost. Have a look at Custom architecture home plans, timber frame homes and more... for the sort of thing you can get as a package. Declaration - I have no ties with them, just I know they've been around for many many years and have a lot of designs that appeal to UK buyers. I think they give indicative costs of around £1000/m2 of floor area. But that can vary a bit, but useful as a rule of thumb. The best way to get a plot is find a house with spare land at the side/rear, and then split the plot - which is what I've done ;-). Just don't mention what you are intending to do whilst viewing!

[northernladuk]

I need to have a good think about all of this that has become obvious.

Thanks

Steve

I think you need to speak to a financial advisor as well.....