Offset mortgage - how should I take better advantage?

zaspa

Dear All,

I have an offset mortgage pegged at Bank of England base +0.75% so am currently enjoying an interest rate of 1.25%. I can borrow £200k+ as an overdraft and still have 10 years+ left on the mortgage at this rate, although I recognise it unlikely to stay that low forever...

I'm trying to think what I could do to leverage this overdraft facility.

Options I'm weighing up the risk/reward profile of include;
1. Withdraw cash and see if I can do better than 1.5% (though as I'm a higher rate tax payer).
2. Invest in an absolute returns fund such as Standard Life Global Absolute Return Strategies Fund (or similar) that should deliver 3-5% return per year over a rolling 3 year time frame.
3. Invest in a cautious fund such as Vanguard Lifestrategy 20% equity
4. Build a portfolio of directly owned government gilts
5. Do nothing!

Would love to hear your thoughts on what you would do if you were me. Clearly I want something with a low risk profile that would provide a return over and above the 1.25% cost of borrowing the money, and be reasonably liquid in the event interest rates rise and the marginal benefit of what I invest in reduces.

Your feedback and ideas would be much appreciated.
Z

bigadaj

Very difficult to get something that is liquid with anything like a guarantee of excess returns. Investing in shares should give a higher return, but even over a ten year timespan then there is nothing like a guarantee of this. Bonds are risky, ironically, and you colluded potentially make a marginal return on cash if you can get multiple cures accounts and get a return of 2.5 to 5% but this needs monitoring, savings accounts are barely worth doing.

Id be ambivalent about this and if deciding to go for it would go for the stock market options, though would personally look at a vanguard fund with higher equity weighting even though that is more risky and probably more volatile. Even then an average return of say 5% would drop significantly when interest rates start to rise