WARNING: Offset Mortgage? DWP discriminate & deny means tested benefits if used.

VictimOfImpersonation

How are offset mortgages dealt with in assessing benefits entitlement?

I asked this question in the 150,000 use benefits tool thread but haven't had a bite yet. Forgive me for starting a specific thread here.

Offset mortgages are receiving much more press currently as a "good thing" especially because of the particularly adverse differential between mortgage rates and savings rates.

They are indeed a common vehicle for a very large number of households now, all of whom might fall on harder times from time to time just like anyone else.

Does anyone know if the authorities have got there act together in devising a proper way of assessing offset mortgages and savings for the purposes of say mortgage interest benefits and general entitlement based on assumed income derived from assets i.e. the savings element in an offset? I was in this position some years ago and they seemed confused and wary and I never did get any help.

For example, if I have a £100,000 mortgage facility but have £50,000 offset which of the following two ways do the authorities jump when assessing a claim for benefits:

1. Do they say ok you have an offset so you are effectively only paying interest on £50,000 with no savings so we will help you in full with the interest on a net £50,000 and make no deduction for assumed income on the savings element, or

2. Do they say sorry chum, you have £50,000 savings - come back when you've spent it but don't let us catch you depriving yourself of capital or we'll have you quicker than you can say offset tracker, or

3. Do they say oh so you're a clever b^stard - you seem to have availed yourself of a flexible borrowing facility - we don't accept those as normal - you'd better run along and use it while we deal with poor people who are in genuine hardship?

Edit: I added 3. because basically that was how I was made to feel !

zagfles

I'd suggest playing safe and using a flexible mortgage, ie one where you can overpay and withdraw overpayments. I have one with Nationwide, I think most Nationwide mortgages are flexible. Or a "one-account" type mortgage which is effectively a current account with a huge overdraft - though the rate is usually higher on these.

In that way you have no savings account, all you have is a debt. So you can truthfully tell the DWP you have no savings should the need to claim benefits arise. The "overpayment reserve" is simply a credit line, ie an amount available for you to borrow, so is no different to having a credit card with a high credit limit which isn't used, or an overdraft facility.

VictimOfImpersonation

I understand, but if your suggestion works (do you know if it works?) then that might mean that offset mortgages should come with a Health Warning - if you lose your job then you are on your own ?

I cannot believe that the Benefits Agency can pick and choose what they want to call a normal house purchase debt and a flexible one ? Surely they are more up with the times now ?

With an associated "savings account" in an offset arrangement you can derive no income benefit from the "savings" balance - you are simply reducing your mortgage balance on a daily basis. It is pure semantics if the Benefits Agency discriminate against an offset arrangement in favour of a "one account", surely ?

diolch

Logic tells me that if you have access to £50,000 of capital irrespective of whether it is used to reduce the interest on the £100,000 mortgage, that capital will take you well over the limit for all means tested benefits. You would and should use that money to support yourself until you find a job.
If you had have used the £50,000 to repay 1/2 of your mortgage in the past then that could be a different matter altogether. However, as you would not have been contractually required to reduce the debt, but only to carry on paying the interest on the £100,000, I would imagine that the DWP would say that you still have the £50,000 even if you don't!

It's really no different than me having £50,000 in a savings account somewhere on which I get interest and having a £100,000 mortgage on which I only pay the interest. The mortgage is not due for repayment for another 10 years, so I have no right in paying 1/2 of it off now to reduce the debt and expect the taxpayers to fund my lifestyle because I have 'got rid' of all my capital!

VictimOfImpersonation

Thanks for that, diolch, but I have to disagree entirely with the view behind it which surely is much like point 3. which I aired in the first post, isn't it ? It basically means anyone with an offset mortgage who has built up an offset "savings balance" (not much different to overpaying with the ability to borrow it all again if necessary) has to then reduce themselves to ground zero again before they can claim.

Meanwhile claimants who have gambled during periods when they were working and stretched themselves to impossible e.g. Northern Rock 120% limits, maybe even fibbed to get self-declared income mortgages, and who otherwise take on ridiculous home loans in a standard interest only or capital and repayment fashion, regularly spend all and more of what they earn, splurge on new cars every year, without a thought for taking on maximum liability for interest, and who never save a bean or overpay in the good times, are relatively unfazed by DWP rules when they lose their jobs ? In their case they can expect to be kept in the style to which they become accustomed by covering their interest in full ?

Why then can't an offset mortgage holder be kept in the style to which they have become accustomed i.e. just paying interest on the more modest net balance owed ?

I think View 3. is a bit like saying "You've got £50,000 in credit card limits you are not using haven't you? Well let's see you max that out first and then if you come back perhaps we may be able to consider helping you."

But thats' all surmised so far isn't it?

Is there anyone here on the forum who actually knows how the rules currently work for offset?

diolch

VictimOfImpersonation wrote: »

Thanks for that, diolch, but I have to disagree entirely with the view behind it which surely is much like point 3. which I aired in the first post, isn't it ? It basically means anyone with an offset mortgage who has built up an offset "savings balance" (not much different to overpaying with the ability to borrow it all again if necessary) has to then reduce themselves to ground zero again before they can claim.

Meanwhile claimants who have gambled during periods when they were working and stretched themselves to impossible e.g. Northern Rock 120% limits, maybe even fibbed to get self-declared income mortgages, and who otherwise take on ridiculous home loans in a standard interest only or capital and repayment fashion, regularly spend all and more of what they earn, splurge on new cars every year, without a thought for taking on maximum liability for interest, and who never save a bean or overpay in the good times, are relatively unfazed by DWP rules when they lose their jobs ? In their case they can expect to be kept in the style to which they become accustomed by covering their interest in full ?

Why then can't an offset mortgage holder be kept in the style to which they have become accustomed i.e. just paying interest on the more modest net balance owed ?

I think View 3. is a bit like saying "You've got £50,000 in credit card limits you are not using haven't you? Well let's see you max that out first and then if you come back perhaps we may be able to consider helping you."

But thats' all surmised so far isn't it?

Is there anyone here on the forum who actually knows how the rules currently work for offset?

I think you have 'available credit to borrow on' confused with 'having capital which is set aside to pay off a mortgage at some time in the future'

With the first, you have to 'borrow' the money which you either overpaid in the past or on a credit card.
With the second, it is your money to use as you see fit.

I know what your intention is, but what is the difference with me having £50,000 in a savings account to pay my mortgage off in 10 years and you having the cash in the bank to use to pay your mortgage off in years to come?

If there came a need in your family for say £5000, would you not draw on the £50,000 that you have set aside?
If so, then it is your money, not borrowed money. You cannot borrow what is already yours.

You seriously cannot think that you would be entitled to means tested benefits with that level of capital sat there for you to choose what to do with?
Don't you think that the taxpayers in this country would not get a little miffed if what you suggest is possible? I would.

Your comments about how others have lived their lives is immaterial. You may think they are wrong, they won't. They have lived for today, knowing that the state will pick the tab up when and if needed. 1,000's do not think about tomorrow, they just see what comes in must go out. In a way that is not such a bad way to view things - you could die tomorrow.

As regards 'dodgy' mortgages - that matters not. If a criminal act was involved in obtaining that mortgage, they would be prosecuted. Highly unlikely though! Look at this way, who would want to live in a squalid 1 bed flat that they had a mortgage on instead of a nice 3 bed detached new home knowing that no matter what happens the mortgage (which may or may not be a 'liar loan') will be covered up to 3.63% by the government if they were sick or out of work.?

I know what I would choose and I would think that many many others would also.

VictimOfImpersonation

I think you have 'available credit to borrow on' confused with 'having capital which is set aside to pay off a mortgage at some time in the future'

No I have nothing confused, but you have chosen to state for us (=dictate?) what the offset "savings" balance is for, a bit like the DWP may (we don't know yet until an expert comments) choose to dictate it too

The fact is, along the sliding scale of what is capital assets (deprivated or otherwise) and what is borrowed we have shiney cars about to be repossessed in driveways, Plasma televisions bought two years ago when the Jone's got one next door at four times the price they can now be bought, and 3 bed semis that people want now so they can look down their noses at neighbours in 1 bed flats. Perhaps 2 bedrooms of those 3 nice ones should be donated free to renter claimants before anyone starts paying the interest to keep them "owned" by the original claimant and before the cost of private rental for the other type of housing benefit claimant (the renters) is shelled out.

If I read you correctly you advocate "buy-now/pay later for tomorrow you may die"?

Surely that does not help the country when we are paying back £400M a day in interest to pay for the streams of container loads of imports that feed people of your view ?

Why should holders of your apparent view be protected when the inevitable happens and thereby aided to keep them sitting atop that dodgy ladder they used to get to their pile of borrowed assets, when a claimant who borrows more modestly and has his or her finances and future more conservatively run is shown the door and the snake immediately outside that takes them directly to the bottom? Is their "accumulated wealth" more valuable to the country than someone who doesn't spend beyond their means and always pays their debts?

I really would like to be reassured if the DWP has better rules now than when last I asked.

diolch

VictimOfImpersonation wrote: »

No I have nothing confused, but you have chosen to state for us (=dictate?) what the offset "savings" balance is for, a bit like the DWP may (we don't know yet until an expert comments) choose to dictate it too

The fact is, along the sliding scale of what is capital assets (deprivated or otherwise) and what is borrowed we have shiney cars about to be repossessed in driveways, Plasma televisions bought two years ago when the Jone's got one next door at four times the price they can now be bought, and 3 bed semis that people want now so they can look down their noses at neighbours in 1 bed flats. Perhaps 2 bedrooms of those 3 nice ones should be donated free to renter claimants before anyone starts paying the interest to keep them "owned" by the original claimant and before the cost of private rental for the other type of housing benefit claimant (the renters) is shelled out.

If I read you correctly you advocate "buy-now/pay later for tomorrow you may die"?

Surely that does not help the country when we are paying back £400M a day in interest to pay for the streams of container loads of imports that feed people of your view ?

Why should holders of your apparent view be protected when the inevitable happens and thereby aided to keep them sitting atop that dodgy ladder they used to get to their pile of borrowed assets, when a claimant who borrows more modestly and has his or her finances and future more conservatively run is shown the door and the snake immediately outside that takes them directly to the bottom? Is their "accumulated wealth" more valuable to the country than someone who doesn't spend beyond their means and always pays their debts?

I really would like to be reassured if the DWP has better rules now than when last I asked.

I have given my opinion. What is right for one may not be acceptable to another.

And I do now advocate spend now and sod the future. That hit home years ago when I was within a cat's whisker of death. Up until that time I was a responsible person who lived very conservatively. Now, I certainly look at life differently. I spend what I have as there may not be a tomorrow for me.

Don't you honestly think that your argument has already been tested with the DWP in the past?
I for one cannot see them accepting that you have £50,000 sat in an account for which you can withdraw on. It is different if you have to borrow it from say the bank - like a loan. But in your case, it is your money, no matter what you intended it for.

You do sound rather bitter with the cards that life has dealt you. Never mind what others do or have done, you should thank yourself damn lucky that you can access that level of money, Many could only dream of it. Enjoy it, and don't worry about the mortgage or anything else. Owning your own property is not the be all and end all of your life. Life is for living, not worrying. You can always start again if you are young enough. If you aren't, well money just doesn't mean the same when you get into old age.

Sixer

Would it depend upon the exact account?

Some (aka current account mortgages) are lumped in together - in which case you have a line of credit but no "savings". The others maintain a kind of ringfencing and you pay interest on the mortgage account minus the savings account. In these cases, surely you would actually have the "savings"?

Having said that, I know that some people with ISA mortgages have had this money discounted - but they need to prove the ISA was specifically for the purpose of paying off the mortgage (ie regular payments, time of taking out, etc etc).

VictimOfImpersonation

... I know that some people with ISA mortgages have had this money discounted - but they need to prove the ISA was specifically for the purpose of paying off the mortgage (ie regular payments, time of taking out, etc etc)...

Interesting observation.

But who is to say it proves anything at all? You can make few long term assumptions about any financial product in Great Britain. We are encouraged constantly to shop around. If you have a tracker at the moment you are encouraged to try to fix it (new product). If you have an offset tracker interest only with offset ISAs currently you might easily in two months time have swapped it for no ISAs and a Capital & Repayment with the same or a different provider on the net balance.

If your observation is correct it is evidence of an uninformed and very limited false assumption (by DWP) of how house purchase finance works here.

diolch

Sixer wrote: »

Would it depend upon the exact account?

Some (aka current account mortgages) are lumped in together - in which case you have a line of credit but no "savings". The others maintain a kind of ringfencing and you pay interest on the mortgage account minus the savings account. In these cases, surely you would actually have the "savings"?

Having said that, I know that some people with ISA mortgages have had this money discounted - but they need to prove the ISA was specifically for the purpose of paying off the mortgage (ie regular payments, time of taking out, etc etc).

Yes, my sister in law has this type of account. She pays the interest based on the net of savings V mortgage outstanding.

The savings portion she puts in what she can when she can. Many months she will put in several tens of £1,000's, and other month's a few £100.

It was a 15 year mortgage for £365,000. She managed to 'save' £285,000 in the first 5 years. Then she paid for her two sons to go to uni. She took out of the savings pot what she needed - all in all about £70,000. She is now able to start building it up again. Currently it stands at just over £300,000, with 6 years to go.

I know that if something crops up (she is looking to buy a small farm in France as a second home) it will be paid for out of these savings.
She is well aware that in 6 years time she will have to find the £365,000, but is confident that that can be easilly achieved.

So yes you can use this money as it is your own. The only downside is that the interest charged on the mortgage goes up. However it is a very cheap way of 'borrowing' your own money.