FTB, is this mortgage and strategy sane?

pph

Hi, am thinking of this:

-HSBC lifetime tracker @ 2.49% above BoE
-No penalties for overpayment (tbc on the finer points tomorrow) and no penalties for exiting
- Fees are manageable
- 80% LTV offered

Strategy is

(a) Not pay 25% like most lenders want. Pay the 20% and keep 5% in a bank account in case Greece and Italy take me down the tubes with them LOL ;]
(b)to keep my eye on the economy and fix at the earliest point it makes sense to. It could be 4 /5 years.. this mortgage is good for a medium term bet.

Item 1 (security) is the most important thing for me. With this plan I keep 5% deposit in a savings account instead of putting it into equity. It's the equivalent of £15k and only adds £75 a month to the monthly payments. It just means getting through the next three years knowing that even if me and the Mrs both got made redundant, we could take up to a year or so to get decent jobs instead of the first thing that came along. And then the economy will pick up and the sun will shine...:A

So yeah, what do you think of this strategy? I aim to sign on the dotted line on Friday!

holly_hobby

Or, you could consider comparing this against an offset mortgage, where your savings are held with the same provider (and remain accessible), but instead of generating interest (measly as it currently is, even before the deduction of tax), the amount of capital held is actually directly offset against your mortgage balance for mortgage interest calculation purposes - with you just paying interest due on the residual amount.

i.e you hold a 150k mortgage, with 25k in a linked deposit account - you receive no interest payment on the 25k, but instead are only charged mortgage interest on 125k (i.e 150k - 25k = 125k).

You could elect to put in the whole 25% fig you talk about (enjoying full mortgage interest offset relief of an equal amount, yet still retaining full access to the capital), or as you originally suggested, physically reduce the mge borrowings by max allowable % under the mge t&cs, and deposit the residue of the 25% fig into the linked account, either way providing you the same end result.

You may link a traditional current or deposit account, and/or an ISA that may be offered by the provider, for each of those named on the mortgage (whereby the ISA and its tax free benefits (subject to gov legislation) may be retained and enjoyed following mge redemption). If things hit a sticky wicket and you need to dip in to your savings, you can withdraw your capital as planned (check for any withdrawal pens on the ISA).

At one time offset accounts typically had a higher interest rate than traditional mortgages, but due to the popularity of them this has somewhat disappeard.

Of course another option, would be to effect a flexible mortgage, where overpayments to the original borrowing, may be subsequently withdrawn (bit a like a savings account really). Some lenders actually do offer this facility as part of their offset products.

Before you dive in, you may want to consider a chat with a whole of market broker to discuss the above, and source suitable providers for comparison purposes to the current deal you have to hand.

I would also advise that (should you wish to deposit your "overpayments" into your offset accounts rather than off the mortgage), that you actively manage whether the capital goes into your offset account, or as an overpayment, to ensure that your linked (offsetting) accounts (ex ISA) never have a combined balance greater than 85k for each party, this will ensure that you also fully benefit from FSCS current regs.

Most offset mortgages generally don't have overpayment penalties, but may have a final redemption penalty (i.e if you move completely to another product or lender), so do check this aspect as you have stated that you do wish to move to a fixed product, when you feel the time is right - which may well be now if you want regular payment security over being able to overpay generous sums.

Hope this helps

Holly

lightspeed

i am on the exact mortgage that you talk about with HSBC.

I took it because back in April i was on an interest only mortgage paying 4.99%SVR with Santandar and the HSBC Tracker with no tie ins gave me some time to consider my options.

Typically, a lot has changed in the last 6 months and BOEBR increase forecasts have shifted somewhat (2013/14) and i am looking to remain on this product for the forseeable future.

You say security is important - then surely a fixed rate would be a more "secure" product.

You also mention watching the economy to then jump ship at the right time - personally, with regards to fixed rates, NOW could well be the right time. 5 year fixes are very competitive, albeit not as cheap as trackers, however, thats what you get by removing the gamble/risk.

YBS have some decent tracker to fix options too over 5 years that are a good compromise.

pph

holly_hobby wrote: »

Or, you could consider comparing this against an offset mortgage, where your savings are held with the same provider (and remain accessible), but instead of generating interest (measly as it currently is, even before the deduction of tax), the amount of capital held is actually directly offset against your mortgage balance for mortgage interest calculation purposes - with you just paying interest due on the residual amount.

i.e you hold a 150k mortgage, with 25k in a linked deposit account - you receive no interest payment on the 25k, but instead are only charged mortgage interest on 125k (i.e 150k - 25k = 125k).

You could elect to put in the whole 25% fig you talk about (enjoying full mortgage interest offset relief of an equal amount, yet still retaining full access to the capital), or as you originally suggested, physically reduce the mge borrowings by max allowable % under the mge t&cs, and deposit the residue of the 25% fig into the linked account, either way providing you the same end result.


Holly

Hi Holly, thanks for your help again. Just FYI I have tried HSBC, Santander and an all products broker.

Santander offered me this but asked for 25% equity. This can be done but means zero savings so there is nothing in the offset part to fall back on.

Going down the HSBC route, we have the 5% difference by only putting in 20% and this can be put into an instant access savings account which has comparable interest to the mortgage (gross though!). As the HSBC one has no penalty for overpayment on a monthly or lump sum basis, it seems the most flexible?

pph

lightspeed wrote: »

Typically, a lot has changed in the last 6 months and BOEBR increase forecasts have shifted somewhat (2013/14) and i am looking to remain on this product for the forseeable future.

You say security is important - then surely a fixed rate would be a more "secure" product.

You also mention watching the economy to then jump ship at the right time - personally, with regards to fixed rates, NOW could well be the right time. 5 year fixes are very competitive, albeit not as cheap as trackers, however, thats what you get by removing the gamble/risk.

Unfortunately due to poor growth that I see, I think that this time next year will be the right time to fix, I think we'll be bumping along the bottom for atleast another 12 months now.

A quick look at moneysupermarket fixed rates says they are all looking for a minimum of 25% too, so no savings. And to get a low enough fix, I reckon it looks like you need 30-40%

holly_hobby

pph wrote: »

Hi Holly, thanks for your help again. Just FYI I have tried HSBC, Santander and an all products broker.

Santander offered me this but asked for 25% equity. This can be done but means zero savings so there is nothing in the offset part to fall back on.

Going down the HSBC route, we have the 5% difference by only putting in 20% and this can be put into an instant access savings account which has comparable interest to the mortgage (gross though!). As the HSBC one has no penalty for overpayment on a monthly or lump sum basis, it seems the most flexible?

Ah I see where your figs are coming from - I thought you wanted to overpay by this amount and have a nest egg for emergencies - where an offset would be more flexible.

With regards to holding your 5% in a (tax bearing) instant access account, why not place it in a cash ISA (one for you & Mrs PPH) - instead (subject to max annual limits) ?

If you want a bank or building society, savings account instead, (assuming you are in employment), if Mrs PPH has taxable income below her personal allowance, you could place the 5% in her name, and have her complete an R85 form with the provider to have the interest paid gross.

Same goes if you are a High Rate taxpayer, place the savings in the name of the nil or basic rate tax payer.

Hope this helps

Holly

originalmiscellany

Holly, I think you may be right - offset - first direct - great deals, overpaying easily etc - and you get the nice online bank account telling you how much you've saved by using an offset mortgage.

originalmiscellany

and i know I don't work for them but here's a link
http://mortgages.firstdirect.com/mortgage-products/remortgaging

but the issue is LTV as Holly said

pph

holly_hobby wrote: »

Ah I see where your figs are coming from - I thought you wanted to overpay by this amount and have a nest egg for emergencies - where an offset would be more flexible.

No, the plan is to save and save and save (Mrs PPH will have to do with a holiday in Skegness rather than the Seychelles until 2018 )

Then, if catastrophe: instant access to savings. If not, then the 5% that was squirreled away gets dumped onto the mortgage without penalty. And all at 80% LTV ... And yes, ISAs topped up first.

holly_hobby wrote: »

Hope this helps

Holly

Certainly does!