Intending to fully offset, do I need to disclose this

smallpurplepill

Hi all

I'm (slowly...) getting closer to buying as a FTB (I rent currently) so going through all the various options and such. At the moment I think an offset mortgage is the way to go - based on amount of savings etc - basically we have put all 'surplus' income above basic living expenses (& lived below means) into savings for the last 10 years thinking that buying was "imminent" so have now managed to build up reasonable savings!

Anyway, ideally I would like to "fully" (or as near as) offset the amount borrowed within a short ish time, from savings and future earnings. I'm not sure whether to let the bank know this though as I guess their response would be "well why do you want to borrow the money if you have it in savings" (I think they expect us to spend pretty much all savings on the deposit, to minimise their risk...) and turn us down - I can't take the risk of being "refused" for the mortgage on that basis but would end up spending £1000s more than I need to on interest!

My question is, do you think this is mortgage "fraud" or against terms and conditions etc if I don't disclose upfront the full amount of savings I would put into the offset account? (All the money is legitimiately obtained and kept in proper accounts with a paper trail and everything, but it's not all with the bank in question at the moment) or do I need to state this anywhere or just give the initial amount that would be put in?

It's already a bit hit and miss due to other status (I'm a student with the open university although I work full time in a professional type job, so come into the "student" risk bracket, and have moved house 3 years ago due to a landlord selling - worst bit is - he didn't manage to sell anyway so my credit has been trashed for nothing! - all of which makes me a bad risk to lenders apparently) so can only really make one application and need to make sure it's right.

Thrugelmir

Why bother with a mortgage at all? If you can raise sufficent finance within a shortish amount of time to purchase a property outright.

smallpurplepill

Thrugelmir wrote: »

Why bother with a mortgage at all? If you can raise sufficent finance within a shortish amount of time to purchase a property outright.

Thanks for the response Thrugelmir! Yes - you are right (short term memory dreadful I'm afraid and I forgot to put that in the post, I meant to!) it sounds more sensible to save up and then buy outright... 2 reasons I wanted to avoid it if possible though,
- the 'offset' part is more liquid than being actually purchased in the property, so if made redundant or anything, I could get some of the money back without having to sell the house.
- I'm not confident to go through it "alone" without the mortgage company and surveys and everything...

LittleMissAspie

You're worrying completely unnecessarily. The bank won't ask you how much you intend to offset. They won't care how much savings you have as long as you have the required deposit. You won't be refused a mortgage for having a lot of savings!

You're not a student, I don't know why you think that. You're a full-time employee. The bank doesn't care what your hobbies are or how you are planning to improve your employment.

Moving house doesn't trash your credit rating. We moved rentals 2 years before we applied for our mortgage, we had no problem being approved.

Lastly, you're not going it alone without a mortgage. The bank will do a valuation survey but this is purely to satisfy themselves that the house is worth lending on. You get your homebuyers or full building survey yourself and that is what tells you the condition of the house.

Thrugelmir

Only downside with offset mortgages is that increasingly lenders are charging a premium for the mortgage product having an offset facility. Albeit marginal.

So you may be better off injecting more capital into the property initially and therefore benefiting from a lower interest rate. Depositing your remaining savings into a fixed rate ISA as a cushion against a rainy day. Also you could overpay the mortgage as your earnings allow.

dwsjarcmcd

Nothing to worry about. I took out an offset mortgage recently and have never drawn a penny down from it. Like you I wanted to retain the liquidity for the future. Also if there is any premium for having an offset, which I would argue has narrowed over the years rather than widen, is a bit of a mute point while it is fully, or almost fully offset.

Thrugelmir

dwsjarcmcd wrote: »

Nothing to worry about. I took out an offset mortgage recently and have never drawn a penny down from it. Like you I wanted to retain the liquidity for the future. Also if there is any premium for having an offset, which I would argue has narrowed over the years rather than widen, is a bit of a mute point while it is fully, or almost fully offset.

Though an increasing premium over the better LTV rates if one is able to obtain one.

smallpurplepill

Thrugelmir wrote: »

Only downside with offset mortgages is that increasingly lenders are charging a premium for the mortgage product having an offset facility. Albeit marginal.

So you may be better off injecting more capital into the property initially and therefore benefiting from a lower interest rate. Depositing your remaining savings into a fixed rate ISA as a cushion against a rainy day. Also you could overpay the mortgage as your earnings allow.

Yes, this is one of the (many) things I'm not sure of! I guess they have "bands" of interest rate based on the LTV e.g. 10-20% (or whatever) rather than literally a sliding scale formula to generate an 'individual' rate based on the exact LTV (or do they?) so perhaps the thing to do is to put the maximum reasonable deposit at the bottom of a 'band'? If that makes sense.

I did go through some of this with the guy at the bank who was very friendly and helpful (and tried to put my mind at ease - unfortunately my anxiety is such that a friendly guy at the bank won't really make any difference! ) and went through the various options but it seems like the advertising literature and quotations etc are very different from the reality, so even if it seems affordable "on paper" etc it will then get chucked out at the underwriter stage?

From the affordability the guy seemed to think it was pretty much 'a formality' in effect as the amount I would want to borrow is much less than the "normal" amount they would be willing to lend on that salary and even with the current rent we have a lot to put into savings each month. That only seems to take into account the standard factors like income and number of kids (we don't have any) etc. When all the facts come out at the detail stage they will probably take a very different view! It's ironic really as based on the numbers involved and credit history etc I would say we are "Prime" but based on the bank's criteria we are worse than the sub-sub-prime borrowers with multiple large defaults and CCJs, self employed with no accounts etc!

LittleMissAspie

Yes they have bands. The best rate will be for a 40% deposit, I don't think I've seen a mortgage for a higher deposit than that. It varies by bank though. The offset rates do tend to be slightly higher than a normal mortgage but I think it's worth it for the flexibility.

I still don't get why you think a bank will see you as a bad risk, from what you've said.

Our offset mortgage is First Direct. We didn't approach any other bank but just rang FD up to apply. You spend like a hour on the phone with them going through lots of questions and they have to read out all the terms and conditions and warnings and things to you, that's why it takes so long. They never asked how much we had in savings, just confirmed that we had the money to match the LTV we wanted and asked where the money was coming from (ie savings). Then they send you the application form with your answers filled out, for you to sign and return. When they asked us to send bank statements, they only wanted our current accounts, they weren't interested in the savings accounts.

Sometimes I wonder if First Direct are weird though because other people seem to have much more complicated procedures to go through when they get their mortgages.

getmore4less

The great thing about an offset is ready access to funds and for TINY extra cost when you need them and getting up to 100% offset.

Depleating all your saving on a purchase is pottentialy risky and the setup costs of an offset are low these days.

First direct have £99 fees and a 0.2% premium on the equivilent tracker.

Barclays allow you to offset ISAs so you can keep them if your money is allready in ISAs but higher start up costs.

No problem being 100% offset, we were but now get more in savings than the mortgage costs and this is posible with current rates as well.

Start with the 65% LTV base+ 2.09 First direct and see if you can find a better deal.

Then look for savings at over 2.59% after tax. like FD own regular saver at 8%.

Chinkle

OP I think you are creating anxiety where none seems to be necessary. You don't appear to have any history that creates a bad credit risk, having to move house certainly isn't one. Whether you choose to be a student part time is of no interest to the bank if you also have a full time job and applying for a mortgage based on that income. The bank has told you they are very comfortable with the level of mortgage you want to raise in comparison to income multiples - you are an ideal candidate.

If you can afford to fully offset I wouldn't even be too worried about interest rate bands as you won't be paying any. If you want to keep as much cash liquid as possible then go for lowest deposit they will allow you to put down.