Mortgages and Savings rather than Offset Mortgage

Gromitt

I posted this in the savings forum, but maybe not the best place, so posting it here.

I'm thinking of buying a house and just looking at the current deals. Although I could afford to purchase the house outright, it seems I could be better off taking out a mortgage.

HSBC have offered me a fee free mortgage @ 1.89% above BOE (so 2.39%)
Shawbrook bank are offering a 2 year savings account @ 4.20%

Removing 20% tax from the savings account make it effectively 3.36%

So assuming the BOE rate stays the same for the next 2 years, It seems I would effectively be getting a starting rate of 0.97%, increasing as I pay off the mortgage. This appears to be better than just buying the property with my savings - the BOE would have to rise to 1.5% for me to be worse off, and then only by 0.03%.

First Direct have offered me an offset mortgage, but that means I would be doing a full offset and so getting 0% on my savings, increasing as I pay off the mortgage (assuming I move it to another account at a different provider)

The first is definitely more risky, but does anyone think the BOE rate will rise by 1% in the next 2 years?

Or is my working just totally flawed and I've missed something important? It just seems crazy for a bank to let someone do this.

Trentenders

You didnt mention whetehr there would be any ERC's on the mortgage. If interest rates did start to increase and you wanted to pay off the mortgage with your savings, would any ERC cancel out your earnings from interest?

getmore4less

After fees both offer easy access to cheap money long term.
The first has some risk on rate.

There are some tracker savings and ISA that might help

Where are the current savings?

getmore4less

Trentenders wrote: »

You didnt mention whetehr there would be any ERC's on the mortgage. If interest rates did start to increase and you wanted to pay off the mortgage with your savings, would any ERC cancel out your earnings from interest?

Not relevent for offsets (edit) unless you need to move

Dave_the_Ginger_Cat

For the next two years this will hold true providing:

Interest rates do not rise more than 1%
Your earnings do not go over the higher rate tax threshold

There may be a handful of extra legal fees from taking a mortgage too.

I'd do the maths on what you might save under a couple of scenarios and work out if it's worth it for you

Gromitt

HSBC state that the fees are:

Booking fee: £0
Arrangement fee: £0
Early repayment charges: £0
Exit fee: £0
Unlimited overpayments without charge
Unlimited lump sum without charge
Extended tie in period: No
We will cover the cost of one standard valuation where this is required by HSBC as part of your mortgage application.

I believe the legal fee for withdrawing the mortgage is about £150'ish. I'd like to go down the mortgage route anyway so I don't spend every penny I've got (like to have some spare cash in cash of emergencies)

If I take out an offset mortgage, the costs are higher - interest is 2.99% and booking fee is £500 (or 2.48% and £1500)

From the looks of it, it seems I can't lose with this mortgage, and if anything changes, I can switch to another quite easily?

I assume to move your mortgage to another lender, the new lender simply pays off the existing mortgage in full and then you effectively take out another mortgage for the remaining amount + any fees from the new lender?

RenovationMan

Sounds like a good plan, especially with the details you supplied on that mortgage. I wouldn't go for an offset as you're not gaining anything other than having access to your money for emergencies.

Just keep your eyes open for better paying savings and current accounts and mke your money work for you. Good luck.