When is a stooze... not a stooze? (CC-Free)

dfarry

Apologies if this is in the wrong forum.... but I kinda thought it was relevant to the whole.....use someone else's money to make interest principle of credit card stoozing....

So is this stoozing without the Credit Card?.....

My retired mother has around £10K sitting in a old old Abbey National saving Account... it was paying around 2% interest gross PA

I suggested that we try to get a better account but she wants to keep complete flexibility to make withdrawals whenever she wants....

This is where the CC-free Stooze bit comes in....

I have a Woolwich Open Plan Mortgage... so any cash in my Open Plan Current/Savings account (stoozed or otherwise saves me interest on my mortgage). But....and I think quite a few people are not aware of this....

If a friend or family member also has a Woolwich Open Plan account they can lect savings pots within their own accounts that can be used to also offset someones mortgage... though they stop receiving any interest in that account.

This is what my Mum and I are in the process of doing.... it requires some trust (which isn't an issue with my mum or I obviously) but I will pay back the interest that I save on my mortgage as an income directly to my Mum's Open Plan Saving Account each month.... the balance and interest rates don't vary much so there isn't to much tricky admin to do... and all the time the balance...interest saved and income generated is increasing.... it's almost like I have become my mums virtual bank!

At the moment my mortgage interest rate is 5.5% so this will be the amount I use to calculate against on a monthly basis....each month the interest apyment from my account to my mums will increase.... I don't have the exact figures to hand but calculated over 3 years an income of £1800 being generated over 3 years...... all tax free!

I'd be interested to know if anyone...with a similar style account/mortgage as me is doing the same?....it's a good feature that is worth taking full advantage of.

DAN

Martinslovechild

Steve,

Similar but not the same.

I took out a number of credit cards over a period of time to BT enough to get my entire mortgage onto 0%. In fact, I now save over £300 per month as a result and my monthly payment is used wholly for capital repayment

Additionally, because we put my wife's car onto 0% cards, we've saved nearly £4000 in interest compared to paying a car loan at 6.9% over the same term.

dfarry

Martinslovechild wrote:

as a result and my monthly payment is used wholly for capital repayment

Thats what I'm aiming for

DAN

Milarky

Just something about what martinslovechild has said. He aims to entirely offest his mortgage by credit card. That potentially involves being assessed on outstanding borrowings of twice the mortgage [eg the mortgage plus an equal amount 'on credit']

But if you offset then total outstanding debt is no more than it was before is it? It is just the 'mix' that changes. If card companies knew you were borrowing to offset [and so not borrowing any net amounts] would this make them more or less likely to approve an application?

I tried to get Halifax to give me a [second] credit card and was unsuccessful. I then used the 'proof of savings' argument to show that I was a net creditor - and even showed how much was in 'instant access' form leaving me with very little debt not immediately repayable. Now Halifax were not impressed by this line - their view was that I should not have credit card debt any more than 100% of income [a year's salary in other words] and I was well past this stage already. They even said [in justification] that there was nothing to stop me spending my savings [as opposed to being stopped from spending other peoples' savings, I suppose, where you have to apply for a loan first!]. Fair point I suppose, so they weren't looking at ability to repay so much as 'risk' of default.

Now if instead of savings you have a mortgage - paradoxically - it looks better from this point of view. You can take the credit card to offset a mortgage but you can't so easily withdraw against the mortgage [i.e. get a further advance as opposed to taking back the offset] without being assessed for risk by the mortgage lender. And if you do so they can still refuse you - so not exposing the credit card lender to any greater risk of default than before. They have more control of your actions in other words...

Back to the point by dfarry,

I'm sure this is fine except your mum has made an 'uneforcible' contract with you and the tax people might not like it if they were aware what you were up to [They might not like what a great many people are up to either, so it is unlikely to arise] I suppose you could say, if pushed, that it was simply an 'interest free loan' Thus your mother is not receiving any taxable interest from you because the whole payment is just a portion of her capital. That would mean that total payments would be limited to the amount she 'lent' you, however, and if you 'repaid' her you would have to deduct what you had already paid!

dfarry

Hi Milarky,

Yes I bet the Inland Revenue don't like it one bit.... but since I have had my Offset Mortgage (4 years....) I haven't paid a penny on any of my savings.... and it's made my tax returns so much simplier...

The reason being is that I never earn an income....I just save interest on my mortgage.....

In the case of my mum...she is retired and gets a pension of around £160 each month... the £10K are her only savings... up to now she has not been liable to tax... apparently....

Additionally.. The Woolwich have said that of their Open Plan Current Accounts, it is only the current account that liable to tax... and savings/deposit account... offset against a mortgage would not incur any tax.

Even if she was eligible for tax the payments I am making back to her account would not take her over the tax threshold I think so I don't think the Inland Revenue would have a case here (should they pursue it...though I don't think they would)

Rafter

Milarky/Dan,

I think the Inland Revenue have accepted that offset mortgages are totally legal and no tax is payable.

Your mum is making 'income' in the form of notional interest. However, as long as you are treating this as a 'gift' to your mum then you would need a huge savings pot in order to trigger any rules about taxable gifts.

I'm not sure whether the 'family offset' arrangement with Woolwich Open Plan has got special permission from the Inland Revenue to be exempt as a result. Does seem like a potential tax dodge otherwise.

dfarry

Yes I agree Rafter.... the other option if I wanted to take the "notional income" risk out would be to simply calculate the interest and retain it in my own savings pot...

And then add this to the 10K to calculate the monthly interest saved....and then top up my own savings pot again...

In this way my savings pot would increase... my mums would remain static at 10K... at the end of the year I would give my mum a Xmas gift of £XXXX that she can pop straight into her account or spend....

Personally I'd prefer to transfer the interest saving directly back to her account because then she can see the money increasing plus she has immediate access to it should she need to get at it quick... I might have a think about this further though.

Martinslovechild

Milarky wrote:

Just something about what martinslovechild has said. He aims to entirely offest his mortgage by credit card. That potentially involves being assessed on outstanding borrowings of twice the mortgage [eg the mortgage plus an equal amount 'on credit']

But if you offset then total outstanding debt is no more than it was before is it? It is just the 'mix' that changes. If card companies knew you were borrowing to offset [and so not borrowing any net amounts] would this make them more or less likely to approve an application?

Now if instead of savings you have a mortgage - paradoxically - it looks better from this point of view. You can take the credit card to offset a mortgage but you can't so easily withdraw against the mortgage [i.e. get a further advance as opposed to taking back the offset] without being assessed for risk by the mortgage lender. And if you do so they can still refuse you - so not exposing the credit card lender to any greater risk of default than before. They have more control of your actions in other words...

Milarky,

I'm not aiming to do it - I am doing it and have been for some time now. I think that it's taken for granted that most people have a mortgage and credit card companies will lend on top of this providing that there's a sufficient buffer.

From a credit file perspective, things look fine as none of the lenders know how much my 'real' mortgage debt is as the amount showing as outstanding is always a near-zero figure and there's no 'credit limit' shown for my mortgage unlike a credit card.

The savings are much greater than stoozing into a savings account as I am a higher-rate taxpayer. For example, if I receive 5.5% gross in the Egg Savings account, then this equates to 3.3% net. However, my mortgage rate is also 5.5% net, meaning that the gross rate is 9.16% !!! There's absolutely no way that I could earn 9.16% in a savings account.

As for credit card companies knowing about my activities, I certainly don't choose to tell them. They probably see me as a potential money goldmine as i've got loads of debt, but both you & I know that it's not real debt as it's all offset against the mortgage. Having it in the mortgage account also stops any temptation to spend any of it!!

sleepless_saver

dfarry wrote:

In the case of my mum...she is retired and gets a pension of around £160 each month... the £10K are her only savings... up to now she has not been liable to tax... apparently....

£160 a month? and savings of £10k? Forgive me if I've misunderstood her situation but if she's living alone, a look at http://www.entitledto.co.uk or a call to the pension credit helpline to check entitlement to pension credit would be worth doing??

dfarry

Thanks for the link Sleepless I will check it out...

My father is still alive and they are married...living together...

He is also retired drawing a pension but is taxed on it (I'm not sure how much it is...I vaguely remember £800 per month being mentioned)... both my mum and dad have applied in the past for relief or credits but were refused I belive the only thing they do get though is the standard one off elderly payment? (not exactly sure what it is...)

Galstonian

I don't want to rain on your parade and you may be getting the equivalent of 9.16% gross but that is only because you are paying 5.5% on your mortgage. To truly compare the benefit of offsetting your mortgage you should be looking at how much you are saving compared to having the cheapest mortgage you could and earning interest on your savings. It is a nice marketing technique of offset mortgage sellers to make them look more attractive and an easy trap to fall into. Obviously, having 100% savings makes it less of an issue, of course the offset works for you but, for those considering moving to an offset it is the wrong calculation to look at.