20k into offset or leave in poppy bond - help please!

Fizzio

We are planning to take out (in early July) a 4.69 5yr fix offset mortgage with YBS for £195,000 LTV approx 65% on a house purchase. We plan to keep savings of £20k in the offset to cover son's school fees in case of emergency over the next 4yrs. We will treat the offset mortgage as a normal 5yr fix paying sufficient each month as if it were a repayment mortgage.
The 20k is currently in the Coventry poppy bond at 6.25%, rate fixed until 31.12.09. My feeling is that we would be better to leave it there until this rate ends and then put it into our offset in early Jan. The poppy bond is in my name and I am a basic rate tax payer.
Do you agree and can we have an offset mortgage without anything much in our offset account initially?
I realise there will be no benefit from the offset initially by doing this.
Many thanks.

sdooley

What you are doing sounds sensible as you will have 20K plus the interest to put in the offset after the six months or so left of the bond. If you break the bond now you will probably get less interest.

Don't let the tax tail wag the investment dog.

patchwork_cat

Have you applied for the 4.69% because if not it has ended? Are you planning on getting interest only or not with YBS? If you are going for the intereest only option they want proof of repayment and don't accept that you will put the repayment amount in teh offset in my experience.

Booradley_2

Setting up my offset with YBS next week. You need an offset product along with your mortgage. The balance can be min = £1, maximum = amount of your outstanding mortgage balance. Within these criteria you can vary as much (and as often) as you like.
I also believe like patchwork cat the 5 year fix is no longer available. Your choices are
1) 3 year fix @ 4.19%
2) 2 year fix @ 3.79%
3) 2 year fix @ 3.69%

For (3) above you need a 40% deposit or LTV of 60%

You should let the bond mature. You will doubtless incur penalties against the 6.25% for early closure. Even if you didn't you;re getting 6.25% before tax as opposed to saving 4.19% after tax (given you have the 3 year fix). On maturity bang it into your offset product.
YBS don't care whether you do or don't. As long as you are elligible for the mortgage.

Boo

patchwork_cat

Boo as a matter of interest have you gone interest only or not?

Fizzio

Thanks for your replies. Seems we have missed the boat on the YBS 5 yr fix! It was there yesterday morning eek! YBS say they are launching some new rates on Monday so will wait and see. Otherwise we will be quickly applying to NatWest for their 4.59 5 yr fix and forgetting about the offset for now.
Thanks again.

Booradley_2

P.cat
I am fortunate to be able to deposit the whole amount (60k) in the offset product. I am prbably going to go repayment just for the physcological factor of actually paying off my mortgage while I am earning (I'm 56)
I paln to move money from the offset product to the mortgage account thereby reducing both in sync. Other income I am now not using to pay off the mortgage will be saved in something or other
So at start
Morgage - 60k
O/S Prod - 60k
new/ savings ac - nil
After say 2 years
Mortgage - 42k
O/S prod - 42/k
New savings a/c - 18k
At End
Mortgage - nil
Offset prod - nil
new a/c - 60k

No interest paid for the life of the mortgage and no interest earned on the (reducing) cash in the offset product.

I suppose I could go the same way with an interest only mortgage and just move the 60 from offset product to mortgage at the end of the term.

patchwork_cat

When I was talking to them they did say to leave £1 less than in mortgage than offset, to avoid early repayment charge, not sure how correct that is, but check it. Can I ask why are you bothering with a mortgage if you have savings to clear it now? I am getting an inheritance that will cover all but 20-30k of the mortgage, but the problem is I don't know when it is coming through. The YBS were being obtuse about how I was going to pay the mortgage at end of term as I wanted interest only.

Booradley_2

PCat
Will check about that £1 business. My appointment to have mortgage agreed in principle is next Monday. My fix with another provider runs out in October.

I prefer to keep a mortgage as my wife (joint owner) claims housing costs against a ridiculously punishing assesment from the CSA. Without a mortgage that liability would be even more onerous. For me the system as descibed in my previous post is the same as not having a mortgage, with the added bonus of an instant overdraft (from the offset pot should I ever need it. Obviously then I would incur some interest charges.
Hypothetically I could for example loan my family money from that 'pot' at the same interest rate as the mortgage. Cheap money for them and no cost or detriment to me.

dimbo61

You could drip feed a couple of regular savers HSBC 8% RS and Barclays 6% RS ( £250 a month each ) and also fill a cash ISA as well !
Mr Booradley
as you need to save the mortgage payment into other investments.

Booradley_2

Thanks dimbo
I have just set up the regular saver at Barclays @ 6%. There are too many conditions for me for the HSBC one. But yeah I have a good few weeks yet to find a home for my (non)mortgage payments.