mortgage decision help - to offset or not?

aminn

Hi,

I'm hoping someone can help us with our decision about what to do about our mortgage.

It's on a fixed rate at the moment and will expire on 1/9/11. We're thinking about going on an offset product as I have about £11k in ISAs which I can offset and we have another £5k in savings. We can also save about £500pm. The mortgage is at £193k so we're thinking it will save us interest to offset. There is no tie-in period so if rates do go up we could then switch to a fixed product. The only problem is I would lose the ISA wrapper on my part of the savings.

The offset rate we've been offered is B+2.59% but it's a staff rate so it's also a benefit in kind so we will have to pay tax on the difference (HMRC rate 4%-3.09%=0.91% at 40%).

So we're not sure if it's worth it or not.

We've always had a fixed rate before and did speak to First Direct (about their fixed rate offset) but they declined us as we had bought a buy to let last year and they need 3 years history of it. Our salaries are good (£45k & £29k) so I don't see why they had a problem.

But anyway, any advice would be very useful to help us make a decision.

Thanks:)

Ms_Sophia

When I am looking at offset products it seems that with any offset product it's possible to find a much better non-offset rate. The fact that an offset rate is usually higher, it's not a surprise But the diff in rates between best offset and best non-offset seems to be quite big, so in the end of the day it doesn't pay off to be in offset if you only want to offset some modest/medium savings. It's different if you got a business and have big sums go in & out of your account on regular basis.
But if it's just savings, then the calculations seem to show that you are better off having a lower % on your mortgage and keep your savings on highest possible savings account.

In our case we could offset ~50% of our mortgage but it doesn't seem to be more profitable for us vs. just having a low % tracker (in our case 2.04% ING 2 yrs tracker) and savings in savings accounts (3% gross). The offset product I compared it with was a Woolwich 2.78% offset tracker.

aminn

Thanks Sophia.

So what you're actually saying is a tracker would be better than an offset? And possibly one with no tie ins in case rates go up?

Ms_Sophia

I'm not saying it's always better. But when I tried to compare best offset vs. best non-offset I was actually quite surprised to find out that the the offset rate being higher (by 0.74 p.% in our case) in rates is canceling out the benefit of offsetting. Although I would have thought that being able to offset 50% of mortgage should bring so much 'savings' on the interest rates...

getmore4less

The margins are genraly lower than 0.74%

FD like for like the difference is 0.3%


Whats the non staff rate I think avoiding the BIK is worth looking at.

Barclays(offset ISAs) current regular offset is the same rate as your staff rate

Gorgeous_George

Interesting that the staff rate is so unattractive.

My (lifetime) offset tracker was taken out in 2003 and tracks at +0.74%.

In your position, I wouldn't bother with the tracker and the staff tax issue sounds more hassle than it's worth..

GG

Ms_Sophia

getmore4less wrote: »

The margins are genraly lower than 0.74%

FD like for like the difference is 0.3%

What I meant by 0.74% is the diff between the best tracker and best offset I could find. These rates are not in the same bank, 2.04% is 2 yrs tracker in ING @ 60% LTV, and 2.78% is 2 yrs offset tracker at Woolwich.

FD is unavailable to me unfortunately.