Interest only offset tracker for equity release

gadgetmind

Do these exist?

I've looked at HSBC and First Direct and they are reluctant to do interest only for equity release. No mortgage on house at the moment, only going to 40% LTV, will use the cash to buy a UK holiday home, and want to handle capital repayment on my own timescale.

Barclays might come close (and allow ISA offsetting) but their rates are high and their upfront fee is £999.

What's odd is that I could use HSBC to release the equity and then remortgage with First Direct later on!

Ian

Thrugelmir

HSBC is First Directs parent.... The same bank.

dwsjarcmcd

I did exactly this with FD. No mortgage on my current house but needed to buy a flat to live in during the week as I work away from home. Raised about 30% equity on my house in a FD offset tracker. That was only a couple of months ago.

gadgetmind

Yes, I know HSBC and FD are the same organisation, which is why it's so odd that their policies are so different.

I have applications proceeding with both of the above and have also looked at Barclays.

FD: Have just put up rates, so not as good a deal, but they allow offsetting and interest only. Won't offset against ISA. Even though this is equity release, they say they will need details of second property if it's a new build. I'll check this with them as I think the guy was off his script and got it wrong.

HSBC: Very good rates, but won't do interest only on equity release and don't have an offsetting product.

Barclays: Haven't spoken to them but rates higher than other two and £999 application fee. Will offset even against an ISA.

If FD will drop the nonsense of needing 2nd property details (am planning of having mortgage in place before looking in anger) then this will work well. If they will do ISA offsetting, even if it takes them five years to get it in place (or I remortgage with someone who does), this is a great option. My plan is to build ISAs to offset mortgage and then use pension lump sum to pay it all off. This way, 25% of my pension effectively goes straight into ISAs, which I can leave as cash or xfer to S&S, and both properties are mortgage free.

2nd property will be a Furnished Holiday Let and we will work hard to make sure it covers its mortgage interest. Anything over this will go into my wife's pension (currently zero!) because she'll only be at basic rate when she retires.

Ian

dwsjarcmcd

gadgetmind wrote: »

If FD will drop the nonsense of needing 2nd property details (am planning of having mortgage in place before looking in anger) then this will work well. If they will do ISA offsetting, even if it takes them five years to get it in place (or I remortgage with someone who does), this is a great option. My plan is to build ISAs to offset mortgage and then use pension lump sum to pay it all off. This way, 25% of my pension effectively goes straight into ISAs, which I can leave as cash or xfer to S&S, and both properties are mortgage free.

First point - they weren't interested in my property that I was buying.

Second point regarding ISA's - Don't understand this point. Your savings in an offset mortgage don't earn interest, they use the 'effective' interest to offset, so no tax is paid anyway. I don't think you can use an ISA with an offset motgage, irrespective of who the lender is. Unless I'm missing something here.

David

gadgetmind

Good news that FD don't care about the 2nd property; this makes things easier.

Regards ISAs, Barclays allow these to be offset, FD don't. The advantage to me would be that the money doing the offsetting is in an ISA wrapper. When I pay off the mortgage, which will probably be via my pension tax free lump sum, I then have the cash "pre-wrapped" in ISAs rather than having to trickle it in over nearly a decade. I can leave this as cash, or move to S&S ISAs, and it gets 25% of my pension into something that's tax free rather than taxed at 40%.

However, my ISA allowances for the next few years will be busy taking up some approved options, so I'll just be offsetting non-ISA cash savings, so it's a non issue for 5/6 years.

I'll keep pushing FD regards ISA offsetting; the revenue clearly allow it, and while it's not for everyone, it does have advantages.

Ian

getmore4less

dwsjarcmcd wrote: »

Second point regarding ISA's - Don't understand this point. Your savings in an offset mortgage don't earn interest, they use the 'effective' interest to offset, so no tax is paid anyway. I don't think you can use an ISA with an offset motgage, irrespective of who the lender is. Unless I'm missing something here.

David

But the money stays in the ISA tax shelter, and once the mortgage is paid off it does generate tax free income for ever(until gov. fiddles).

The down side is you do lose the growth.

Barclays allow ISA in their offset pool, we get the new one each year on the good rates then offset when the rate drops below the mortgage rate.

We can move the money into other ISAs if we wanted.

Barclays probably have the best offset product for features but the rates and fees are no longer competative. They used to allow family/friends offsetting, The offsets that allow family friends offsetting are up there as well as best buys.

Unless you need the ISA or the family friends style offsetting FD have been the best for some time on cost basis.