Savings vs offset mortage

paulo69

Hi all

I am looking to save for a deposit over the next 2 years for a new house. My current house is too small (as I now have a little boy) but as there is not a great deal of equity in it (about 10k) I would rather save for a new house and let out our existing house eventually.

I have an offset mortgage with the Woolwich (current interest rate is 1.45%) as am out of tie in and it's .95% over base - I know this will go up as interest rates gradually (hopefully) rise.

I really have two options :

Fixed term bonds savings account for 2 years at 3.85% yeilding me a pot of about £42000 at £1700 a month for 2 years

or

Pay the same amount into my offset mortgage account over the same time period thus increasing the equity in the house and paying less interest over the time period. I will of course be taking the money back out after the 2 years as a deposit for my new house


I haven't got a clue how to work out which will be better for me at the end of the 2 years.

Could anyone help ?

Thankyou

Paul

psychic_teabag

I think you want to pay in £1700 per month ..? Usually, fixed-term bonds don't allow that, and require the whole deposit up-front. Some allow deposits while the account remains open to new investors.

Thrugelmir

[QUOTE=paulo69;42944304
I have an offset mortgage with the Woolwich (current interest rate is 1.45%) as am out of tie in and it's .95% over base [/QUOTE]

Is the mortgage portable?

Maybe better to sell up and transfer the rate to your new property.

paulo69

Thrugelmir wrote: »

Is the mortgage portable?

Maybe better to sell up and transfer the rate to your new property.

Mortgage not portable and would be looking to let out anyway as part of investment portfolio.

Doesn't have to be bond savings - can just be normal savings at 3% - can't work out which option will be best though :doh:

Thrugelmir

While BOE base rate is low. Maximise instant access cash ISA's and regular monthly savings schemes along with your offset facility. Better to be cash liquid and adaptable to changing circumstances.

Letting a property with currently 10% equity isn't much of an investment portfolio more of a punt.

paulo69

Thrugelmir wrote: »

While BOE base rate is low. Maximise instant access cash ISA's and regular monthly savings schemes along with your offset facility. Better to be cash liquid and adaptable to changing circumstances.

Letting a property with currently 10% equity isn't much of an investment portfolio more of a punt.

Thanks Thrugelmir. I already have another 2 BTL properties and want to make this one my third. In 2 years I'm hoping to have another 10k paid off the mortgage so hopefully it will be down to 20% equity - 'permission to let' on the house and fingers crossed, it'll all go ok. If not, I'll just flog it

Really appreciate your time.

kidmugsy

Why not start a Barclay's Golden ISA? It pays 3.25% pa tax-free and that will increase in line with the base rate for the first 12 months. You can put in £5340 for this tax year and your spouse could do the same. After the first 12 months it may become a rather a poor payer but then you just transfer it to some other provider.

2sides2everystory

As you have a Barclays connection already, have you seen this ?: http://barclayswealth.com/international/savings/short-medium-savings-category/monthly-saver.htm

You may qualify for free banking with them.

Barclayswealth online banking can "see" your usual Barclays UK accounts and whilst any balances in Barclays Wealth cannot be offset against the Woolwich mortgage (and whilst that remains at 1.45% you will not want them to be) you might be interested in the ability to push up to £2000pm for 2 months into this 5% gross arrangement with instant access and ability to transfer between all Barclays accounts in one online system (transfers between Barclayswealth and Barclays may not be seen immediately unlike between UK accounts but it's naturally fast e.g overnight reconciliation). Interest can be paid monthly. Rate drops like a stone for any remaining balance if you make a withdrawal during the 12 months.


Also have you amended (increased?) that mortgage in any way since you started it? If you seriously do have only £10,000 equity in the property then perhaps my next suggestion is not a runner, but if equity was greater and the LTV was good you might still be eligible at a small one time fee to borrow extra money at 1.45% as an increased long-term overdraft on your associated mortgage reserve account.