The One Mortgage

ab7167

Oh, oh so much information!

Anyway, I think we have made a decision to stay with Nationwide, but take out a new mortgage for the increase rather than increase the mortgage we have. This means (I am almost certain, if not correct me:-)) that we can overpay by max £500 on EACH mortgage, therefore allowing use to make the planned £800 pcm. As the new one will be at a higher rate, we can hammer this one first. It's all very complicated, and my brain hurts...

Also investigation offset mortgages from other lenders - so far I have only found Intelligent Finance - is there a list somewhere of which lenders offer them?

Alex

Secret_Wookie

Moneyfacts list of Offset mortgages

http://www.moneyfacts.co.uk/mortgages/bestbuys/caom.aspx

First Direct might be worth a look

jamesd

ab7167, try the Moneyfacts search and enter what you desire. You'll get the option to say that you want an offset account on the second page in the features section, so don't worry about it not being on the first page.

One that might be interesting is a Yorkshire Building Society mortgage, since you can have three different offset accounts and pay direct debits, standing orders and take cash via ATMs from the offset account, making it even closer to the One Account.

tawnyowls

jamesd wrote:

ab7167, The One Account position is fairly simple: if you use that mortgage you will pay about 2,000 a year more in interest than if you instead get a competitive offset mortgage from a different vendor.

I'm not saying your figures are wrong, but I just can't see how people work this out. I've looked at loads of mortgages, most claiming to be under 5%, but when you look at the APR, it's the same as the One account (5.8-5.9%), so how can they be cheaper? Particularly as the APR was introduced so people could compare rates easily.

I've had an offset mortgage and switched to the One account, because for me the lack of hassle with having to move money between accounts to pay for bills or to ring up the bank to ask for some money to move back out of the mortgage account far outweighs the disadvantages, particularly when you consider the overdraft charges if we didn't have the money in the right account at precisely the right time. As I'm self-employed, it makes sense to have an account where I can overpay or draw back money whenever I want. As for the extra interest, yes, you may pay more, if you carry on the same old spending habits. For us, though, this account has been a second lightbulb moment - instead of thinking of money in our offset account as being 'left over' after we pay the bills, we look at our statement and realise that we've now got X amount of our mortgage left, but if we spend £200, that sum will go up by £200, and somehow, we find a way to manage without spending that £200. It forces you to realise that your mortgage is a debt, in the same way as a credit card or any other sort of debt, which is something people have been discouraged from doing for years, because they've been told to only look at the monthly payments and if they could afford them, that was fine - even on forms, mortgages are separated from 'debts', as if they're different things. Weirdly, there's also a sort of freedom in that we don't have to worry about having money coming in so as to pay the mortgage, and the possible consequences that could result from missing a payment; all that would happen is that it would take longer to pay back and we'd pay a bit more interest, but without affecting our credit score. As I said, though, the very fact that we can see this debt really reducing amazingly quickly spurs us on to reduce it even faster. This type of mortgage is the norm in Australia, and people are encouraged to get rid of their mortgage as early as possible.

jamesd

tawnyowls, lets use as an example ab7167's 207500 mortgage assuming it's 90% LTV and property value 230556. He indicated after Christmas total savings of 1050 per month and I'll ignore the anticipated 5000 salary increase for now.

I've been looking at it recently so I'll first start with the Yorkshire Building Society Offset full term tracker. This has up to three offset accounts and you can withdraw cash from ATMs and pay standing orders and direct debits from them. The interest rate is BoE+0.45%, currently 5.2% and there is a 495 fee.

25 year term with 300 fees added to the mortgage gives total amount to be paid 372216 and 5.4% APR with monthly payments of 1237.85. Their KFI says the 1050 per month will reduce the total amount to be paid by 107211.59 to 256004.

Over to the One Account mortgage shrinker tool. I'll use 4500 as the monthly salary paid into the account, 1050 left over. 0% payment increase. 0 savings, that's already done in the money left over. No bonus or lump sum. They start showing a 6.45% mortgage with a total to pay of 418472. Click on the shrink button and the term falls to 9 years, 5 months and the total to pay to 275448. Impressive. Except...

For the YBS mortgage the total to pay is 256004, 19444 less and about 8.5 months sooner than with the One Account. Dividing that extra cost over the term means they are paying on average 2232 more in interest each year.

And that's why the One Account is really a mortgage expander.

Please give it a try yourself to try to find ways for the One Account to beat the YBS mortgage.

bunking_off

The tools on the websites are really blunt, IMHO too blunt.

For a start, it assumes the same interest rate will prevail through the mortgage term. The One Account interest rate depends on the size of the facility versus property value : and penalises high LTVs. For example, I pay nowhere near 6.45% with them. Now, even if property prices are static, as you repay the loan, you can reduce your facility size...so reality is by half way through the term you'll be paying 0.5% less than the headline 6.45% quoted : how does that impact the calculation? (Obviously, if property prices increase, for the price of a revaluation you can reduce your applicable rate - I did that even though my balance had barely fallen, with an approx 2 yr payback on the valuation fee).

Against a conventional mortgage, One Account customers can exploit 0% credit card deals and balance transfer into their account (I'm aware that you can you that with more conventional offsets). Look around this site and you'll find quite a few OA customers with £40-50k of their mortgages on 0% cc deals. Personally, I've had more than half my mortgage stoozed onto such deals so the effective mortgage interest rate is nearer 3. You can do that with a conventional off-set, but it involves a lot of f...ing about finding Super Balance Transfer cards to get the funds into your savings account, which are increasingly few and far between.

I don't know what kind of offset the YBS one is. Is the offsetting account a current, or savings? If the latter, then it's not like for like because with OA, your salary's paid into the account so it "automatically" reduces the balance, with it gradually increasing during the month. Also, any excess that you don't spend "automatically" reduces your balance. With a savings related off-set, you have to be taking the conscious decision to sweep funds from your conventional current account into the off-setting savings. I don't doubt that if you're ultra-concientious you could match the advantages of a current account based one, but reality is there is latency in people's actions so inevitably one would end up with funds languishing in current accounts paying 0.1% interest when they could be reducing one's mortgage.

Swings and roundabouts. Depends how much time you want to spend actively managing that your funds are in the right place, and also the LTV involved. However, would disagree with those who say it's cut & dried that the One Account isn't competitive - depends on individual circumstances.

jamesd

bunking_off, the advanced calculator at the One Account site has a repayment schedule showing that they reduce the interest rate as the facility decreases. Somehow it makes the One Account total cost 284,222, higher than their shrinker calculator. If you go to costs and select interest rate from the pulldown you can see the rate decreasing. Starts at 6.30% for months 1-12, then 6.15 for 13-20, 6.05 for 21-27, 5.95 for 28-60 then 5.85 to term.

The YBS account has cash withdrawing, standing order and direct debit facilities. I don't know about direct salary payment into it or one-off payments. Seems quite likely but it's not a great hassle to set up a standing order to pay salary into the account every month, perhaps leaving some in a current account earning 6% interest (the A&L one) or 4% or so, others.

With all current account and offset mortgages you can put a stooze pot into the offset account and an Egg Money credit card account isn't exactly tough to get if you have halfway decent credit and need an SBT card. I agree that stoozing is a nice feature of the offset and current account mortgages - a perfect match for the consumer.

If you're really concerned about money languishing in a current account instead of being used to reduce mortgage interest, don't worry too much. The 2232 more per year in interest paid on the One Account compared to the YBS means you'd need to have 38,000 sitting around getting no interest to be worse off (at the 5.85% rate). Since you'd probably put it in a current account paying more like 4% before tax you'd really need to have 84,000 sitting in the current account. I don't really think you have to be ulta-conscientious. 38,000 is more than the UK average salary, so it's pretty tough to imagine someone not noticing that much sitting in their current account.

Some people with a small business can benefit greatly from a One Account. Those, if they need lots of cash in a current account, are one group who might benefit from the One Account sometimes. But as you can see it does take a lot sitting in the current account before the One Account can overcome the disadvantage of its very high interest rates.

The One Account is a really nice product, IMO. A mortgage to aspire to... except that the interest rate makes it uncompetitive for most people, when compared to the other current account and offset mortgages that are available. I'd love to have one but not to pay 2000 more a year for the privilege. That's a bit steep.

bunking_off

OK, so we at least agree that it's horses for courses. I think where we differ is in the view of how many people it makes sense for.

I don't disagree with you for a moment that for someone with a high LTV, and high mortgage, the YBS account probably makes more sense.

HOWEVER, consider my situation. The differential interest rate for my LTV and my outstanding balance works out that I'd pay £300 more per year for the One Account versus YBS - not £2000. Maybe I have a rosy view of the world, living in the north and not having moved in the last 3 years, but I don't know anyone with a mortgage over £100k (actually, if I'm honest I don't know anyone with one half the size of that)...FTBs in the south perhaps, but not around here. In my situation, with two salaries going through the account plus significant expenses (company pays then I pay my cc bill a few weeks later), plus my risk attitude always wanting something handy in the current account "just in case", the "current account factor" easily wipes that out.

Incidentally, although the YBS account allows DDs, it doesn't have cheque facilities without going into the branch. Not something I use much, but pretty inconvenient when I do want it. Or a debit card - you're b*ggered if you shop in Lidl or Aldi (or, for convenience, if you want to put a new Porsche on Switch, but that's another tale...).

I'm a great fan of offsetting mortgages, and for my money having the whole thing in one pot is a particularly good move, if only for the psychological effect of getting a balance of account and realising that you have a choice of buying that whatever, or shortening your mortgage by a week.

I think there's also a psychological difference between mortgage + offset and current account. Imagine you have a £100k mortgage and £40k in your offset fund. With mortgage + offset you'd probably think "I'm paying my mortgage, and I've got equivalent of £40k so I'm well off" : you'd be more inclined to spend a bit. With a current account, you'd think "bl**dy h*ll I'm still £60k overdrawn, no spending for me until this thing's nearly paid off". Or maybe it's just me. What I would say is that for me, that attitude's turned a 25 year mortgage into something that'll be paid off in 10 on current plan.

If I was taking out a mortage today, I'd take a very careful look at the YBS product (when I started, it was the One Account or the One Account). Ultimately, that need to explicitly decide to put cash into the offsetting account would probably put me off though.

wymondham

excellent thread - many thanks for the discussion between you two!
as a one account user "bunking off", can you tell me how you pay the capital on your one account? - i've been looking at it for months but can't seem to get my head around it as it's drastically different! I've been told to leave money in the account, but then how do you overpay? any guideance from a real user would be very much appreciated!!!

bunking_off

wymondham wrote:

as a one account user "bunking off", can you tell me how you pay the capital on your one account?

This is a quick description as I'll be offline for a few days...will fill in more if others don't jump in.

Let's say you get paid £2k/month net. You owe £50k on your mortgage, so (in broad terms) the monthly interest is £250.

If, over the month, you spend £1750, then your mortgage balance will stay the same....you spend £250 less than you earn, but £250 interest is applied so you're back to square one.

If, however, over the month you only spend £1000, then you'll have reduced your mortgage balance by £750. If you spend £2000, then you'll have increased your mortgage by £250.

The account operates like a big overdraft...it goes closer to zero when you're paid, then gradually increases during the month as you spend. So, there's no concept of "paying the capital off" per se...it just undulates according to how much your spending and will eventually get to zero so long as you don't overspend every month.

If you want to know how you're doing, then the One Account team will tell you what your balance should be according to a payment plan you suggest to them, e.g. "I want to pay off all the loan over 25 years". So, if you were supposed to owe £52k by now, the £50k overdraft defacto means you're £2k in credit. Personally, I sort it by having my own spreadsheet, because I overlay my mortgage with 2 shorter term car loans, plus I act as a savings bank for my family by taking their savings, reducing my mortgage, and paying them interest at the One Account rate...but I guess that's "A-level" One Account operation...