Woolwich / Barclays Offset Help!

markt1891

I have had a offset tracker (originally with the Woolwich) for about 8 years but have been having problems with the monthly payments since the recent changes in the BOE base rate.

The problem seems to be due to that fact that my mortgage has a split rate. It is set up as interest only and 70% of the capital is at one interest rate and the remainder is at another. This is due to a a re-mortgage 4 years ago when I moved house.

It seems that the Barclays system cannot calculate the payments on a split rate and sends out a change of payment notice based on the Barclays SVR.

During some recent telephone calls to Barclays to sort out what is going on with my monthly payments they informed me that my direct debit payment would not automatically reduce each month in line with the BOE base rate changes as my mortgage was set up as "term reducing" rather than "payment reducing". I know this is true for repayment mortgages but mine is interest only.

I have done some reading tonight on the Barclays website and the only references I can find relating to "term reducing" and "payment reducing" are related to the offset benefit and not changes in the base rate.

I am wondering if anyone here with a Barlcays/Woolwich interest only offset tracker can clarify this for me? If the offset benefit is set up as "term reducing" would you still expect the monthly payment to reduce in line with the BOE base rate? Barlcays are telling me that if it is set up as term reducing then the payment is reviewed annually. My understanding for interest only mortgages was this:

"Term reducing" - monthly payment is calculated using BOE base rate + % over against 100% of the outstanding capital. Payment will only change when BOE base rate changes.

"Payment reducing" - monthly payment is calculated using BOE base rate + % over against 100% of the outstanding capital minus the offset benefit. Payment will then vary each month depending on offset amount.

Can anyone clarify this for me? Barclays have just switched my mortgage to "payment reducing" to ensure that my payments go down when the base rate changes but I'm not convinced this was really necessary.

Thanks,

Mark.

dimbo61

Not sure on the term reducing thing or payment reducing either but could you ask them to keep the payment static at the old ( higher ! ) rate and therefore pay off the mortgage even earlier.
Quicker paid off less interest !!!

markt1891

Thanks for your advice...

Yes I think they will hold the payment. I have been overpaying since I took the mortgage out by paying additional payments into the mortgage account.

My concern at the moment is that they have switched it to "payment reducing" for the wrong reasons. I would much prefer the DD to just follow the BOE rate and the offset benefit will then reduce the capital.

When the BOE rate drops I would increase the additional payment I make into the mortgage account. It's more work for me this way, but I find it gives me more flexibility if I am a little short on funds one month! If I need to I can reduce the additional payment I make.

Mark.

chivers1977

You should not have a composite rate with two different products on Offset. It can only work with one Offset product on the main mortgage and reserve account (mortgage current account). This could be your problem. If you did remortgage in 2005 it should be right. There is no reason why you should be receiving any documentation relating to SVR. Term reducing mortgages would not change payments until Mortgage Year End as you have suggested that you were informed as the point of them is that you continue to pay a higher sum to reduce capital down.

I think that you need to call up, get it switched back to Term reducing and query the rates.....

markt1891

Thanks for the advice...

When I first took out the mortgage in 2001 the deal was base rate +0.75%. When I moved house in 2004, the additional capital was added to the mortgage but I could not get the original deal. The additional capital was a base rate +0.85%. I am not an expert in this at all (as you can probably tell..) so I am not sure if it is classed as an extension of the original mortgage or a new one.

When I spoke to Barclays this week they explained that their systems cannot calculate the interest rate changes for composite rates. Their systems automatically produce a "change of payment" notice based on the SVR and they cannot stop it from being sent to me. This payment notice just shows the total outstanding capital, a single interest rate and the new payment amount. Someone at Barclays then has to manually intervene and re-calculate the payment using the composite rate. This then produces a second "change of payment" notice which is also sent to me. This notice clearly shows the original capital and additional capital from when I moved house at different rates (+0.75 and +0.85).

I have been told by Barlcays to ignore the "system generated" payment notices and only refer to the ones which show the two rates.

The bit which was really confusing me the most was the "term reducing" and "payment reducing" options. Here are the definitions I have found in the Barclays product information:

Term Reduction
The monthly mortgage payment will be collected as normal. Any offset benefit is deducted from the capital balance thereby reducing the mortgage term. Although the default option is to reduce the term, you can switch between term and payment reduction at any time with no fee.

Payment Reduction
The monthly mortgage payment is reduced to reflect the credit balances in the offset arrangement. The first mortgage payment is always collected in full irrespective of the amount of credit balances offsetting. However over the course of the mortgage you save thousands of pounds in interest payments.

Nowhere does it state that Term Reduction means that the payment will also remain unchanged when the base rate drops. It only refers to how the offset benefit is applied - either to reduce the capital/term or monthly payment.

I would much prefer the mortgage to be term reducing so that the "offset benefit" is used to reduce the capital. However with the recent drop in the base rate I assumed that the DD would have automatically reduced, I can then choose to make additional payments into the mortgage account to overpay it if I wish.

I would not expect my monthly payment to change based on the amount being offset, which is what is going to happen now that it has been changed to "payment reducing".

Mark.

getmore4less

The important thing is you are getting charged the correct interest on the mortgages.
You should be able to tell this from the monthly statements.

With an offset it really makes no difference what the payment actualy is.
It alos make no difference if you are term reducing or payment reducing the net effect is you pay less interest which it the goal of the offset.

Set the payment up to be from one of the current accounts that is in the offset pool and you can move money around as you like.

Even if you are actualy overpaying the mortgage rather than just offsetting and would prefer not to the reserve just goes up by the overpayments anyway so you can still get the money back if you need it.

As far as I am aware reducing term will only change once a year and in fact if the payment is lower they will still keep it at the old amount from my experience(repayment offset)


One thing you should look at is if you have two rates are you making sure you have this optimised

You should be paying off the more expensive debt faster and making sure that all the offset funds are against the higher rate part of the mortgage first. no idea if this will be automatic or you have to do something special mine is all at one rate.

getmore4less

markt1891 wrote: »

I would much prefer the mortgage to be term reducing so that the "offset benefit" is used to reduce the capital. However with the recent drop in the base rate I assumed that the DD would have automatically reduced, I can then choose to make additional payments into the mortgage account to overpay it if I wish.

I would not expect my monthly payment to change based on the amount being offset, which is what is going to happen now that it has been changed to "payment reducing".

Mark.

It make no difference if you have offset funds or reduce the mortgage account the effect is the same the amount of interest calculated is on the net amount owing.

I would not expect the payment to change when interest rates change if you are on reducing term.

As I said in the previous post make the DD come from an offset account and it makes no difference you just put in the amount you want each month.


If you are using Barclays for your active current account and have it offset then you don't even have to move money around.

markt1891

I think I will call Barclays next week and switch it back to term reducing and fix the payment. This seems to be the easiest way to manage it, I don't really want the payment fluctuating each month and I would prefer the offset benefit to reduce the capital.

Barclays have recently checked my account to ensure that I am being charged the correct interest and that is all OK. You've raised an interesting point about which element of the capital is reduced first... no idea how that works but I will try and find out.

Once again, thanks for the advice...

chivers1977

As far as I am aware, top ups on Offset shouldn't be on a different rate. They should be on the same rate to stop this happening. Any composite does have to manually calculated based on the split between each account. The last tier which appears that it is the 0.85% part is repaid first.