Mix and match (aka hybrid) loans (and maybe Offset?)

samizdat

Some lenders allow you to split your mortgage loan across two or more of their products. For example, half of it could be on a fixed rate for 5 years and half of it could be on a variable tracker rate. See also this Telegraph article, which mentions HBOS, BM Solutions, Nationwide, Woolwich and Abbey: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/23/cmmort25.xml . I know that Market Harborough also allow this.

It occurred to me that it would be fantastic if one could do this with an Offset product and my next thought was that there is no way any provider would allow this. But then I thought, why not?

My lender (Leeds) is constantly pushing poor value secured loans charged at its SVR. Surely, a good way to attract people to you as a lender would be to offer them a line of credit at only a few basis points above your most competitive mortgage rate. Why would you worry, any more than you already worry with Offsets, about the possible deterioration in creditworthiness of your customers that is signalled by them drawing down on the facility. Provided you have a sensible LTV cap in place at say 80%, you should be ok, or as ok as you already are with Offset customers.

To spell it out, say you need 150k debt to finance your home. You take out a 200k mortgage, of which 150k is on a conventional tracker and 50k is on an offset tracker. You keep 50k in the bank so that you pay no interest on the offset mortgage. This gives you the cheapness of a normal mortgage with the flexibility of an offset. If you want to overpay, you pay down the conventional debt, leaving you with the ability to take money out of the offset if needed (although ideally, even the conventional mortgage would be flexible so that you could borrow money back at still lower rates).

This would eliminate the problem that people have in trying to calculate whether the additional margin charged on an offset mortgage negates any advantage they might derive from keeping surplus "rainy day" funds in the offset account.

If lenders did offer this, it would attract people to them so there would be advantages for them also. Incidentally, I have no idea if anyone does already offer this but I somehow doubt it.

samizdat

I suppose I am asking the mortgage brokers here whether such a product exists at the moment (a mortgage that is part offset and part conventional).

Anyone?