Best rates on Offset Mortgages?

pinkteapot

We currently have an HSBC Tracker mortgage with a lifetime rate of base rate + 1.99% (currently paying £2.49%).

The mortgage balance is £78k with remaining term around 13 years. House value approx. £230k.

We have cash savings of £48k. So, obvious question, would we be better off with an offset mortgage?

The reason we have such high savings and haven't used them to pay down the mortgage is that we're planning on starting a family soon at which point our current high joint income will drop to about 25% of what it is now. The savings will be run down pretty heavily for about five years, starting in a year or two.

I don't really know anything about offset mortgages (beyond the basic concept) and HSBC don't appear to offer them.

Any ideas on current best rates and how I can evaluate whether it would work out cheaper for us?

We're pretty happy with our savings pot now so are planning to leave that as it stands and overpay the mortgage by £2-3k a month for the next year or so, knocking the balance down to £50k ish.

originalmiscellany

HSBC don't offer them, but First Direct (owned by HSBC) do offer them...

http://www.knowyourmoney.co.uk/offset-mortgages/

will give you some info on them. For what it's worth, we're in a similar position to you, and so we're saving as much as we can, so we can if necessary dip into our offset pot should we need to, but at the moment it's simply balancing our our mortgage (see my diary if you're interested).

First Direct do often get (along with Smile) the highest customer satisfaction ratings, which is something to consider in your decision. However long gone are the deals of BBR + 0.19% which some lucky sausages have!

pinkteapot

Thanks, I'm just trying to get my head around offset mortgage accounts (been reading the One Account website, though I guess they're not competitive).

What I like about the concept is access to savings. As I said, we're planning on not saving for a while, and making overpayments instead. What I'm nervous about is that with overpayments the money is gone, and if we run out of savings in the future we'll have to use credit cards/loans with much higher rates than the mortgage. The mortgage is the cheapest borrowing we'll ever get.

On the flip side of that, does a One Account type account not just encourage you to never actually repay your mortgage? In effect it appears to give you access to your overpayments whenever you like, effectively increasing your mortgage balance again. Seems dangerous....

It's such a different way of managing money that I'm confusing myself.

Thrugelmir

By overpaying the mortgage now. At the point in time your income diminishes you could ask HSBC to revise your monthly payments over the remaining term of the mortgage, i.e. downwards.

Are your savings earning a far better interest rate than you are paying on the mortgage?

pinkteapot

Thrugelmir wrote: »

By overpaying the mortgage now. At the point in time your income diminishes you could ask HSBC to revise your monthly payments over the remaining term of the mortgage, i.e. downwards.

We hope not to do this. Overpayments so far have reduced the term, not the repayment, and we aim to keep doing this. As and when our income drops, the income we will have will cover mortgage, household bills and food. But we'd have nothing left over. Hence the savings pot, to pay for all other spending. That's the plan anyway!

Thrugelmir wrote: »

Are your savings earning a far better interest rate than you are paying on the mortgage?

No, we're not good at looking after our savings properly. All of our finances are with HSBC. We've got the best rate among their instant access savings accounts but obviously that's still pretty poor. Hence wondering about offsetting...

Thrugelmir

pinkteapot wrote: »

No, we're not good at looking after our savings properly. All of our finances are with HSBC. We've got the best rate among their instant access savings accounts but obviously that's still pretty poor. Hence wondering about offsetting...

Maybe worth paying a lump sum off your mortgage straight away. Then rebuilding your savings by using regular monthly savings schemes, fixed term cash ISA's etc in the next 2 years.