Advice for my Offset Mortgage Dilemma please

chuang6

I recently had major problems with First Direct offset mortgage. My fixed rate will end in one month time and their new offset product rates are almost 1% higher than repayment products, Much higher than before. In the past typically about 0.5% higher than repayment. We had a lot of debates with First direct customer services. They now can offer me a lower rate but with Repayment scheme. this will save me a lot of interest money. But I am not sure about this as I will lose all the flexibility associated with Offset (it links with my First Direct Current Account).. Anyone would have some insight as why mortgage industry and First Direct offer very high rate for their Offset mortgage now? What would be my best choice. Thank you!!

My Offset details as below:
I have 200,000 Interest only Offset with First Direct, the rate of 1.8% will end in Jan.
They offered me 2.7% fix for two years which I found it very high, as my LTV is only 50%.
We debated a lot and we reviewed the First Direct Repayment Products. They can offer me 1.5% 5 year fix for Repayment like 15 years. It saves a lot of Interest money, but I lose all the access to saving and flexibility. Any advice are appreciated!! Please share your thoughts.

getmore4less

In the past the margins were much lower than 0.5% and the fees were lower.

2011&2017 FD had 0.3% margins Barclays had 0.1% with £500 fee in 2011

FD got less competitive at times seen 1% margin in 2015 when Coventry had one at 0.2% over the FD regular product.

Coventry still have some decent offset products.

Reality is with good LTV you can get regular products that are cheaper than savings rates for decent chunks of cash no need for offset.

chuang6

Thank you very much indeed. I would think so. Coventry is doing an innovative product Offset Repayment at 1.95% 5 year fix. I am currently trying to decide between FD 1.5% fix for 5 years regular Repayment and Coventry Repayment Offset at 1.95% 5 years.

In order to avoid the hassle of moving lenders, I am thinking about staying with FD - switching to FD regular Repayment. Unfortunately I need to leave some saving for flexibility as Offset benefits will be lost.

Any perspective or suggestions please? Thank you again

silvercar

Difference of 0.45%, work out what that amounts to and how much savings you will have to place and where to balance out.

Tom99

chuang6 wrote: »

Thank you very much indeed. I would think so. Coventry is doing an innovative product Offset Repayment at 1.95% 5 year fix. I am currently trying to decide between FD 1.5% fix for 5 years regular Repayment and Coventry Repayment Offset at 1.95% 5 years.

In order to avoid the hassle of moving lenders, I am thinking about staying with FD - switching to FD regular Repayment. Unfortunately I need to leave some saving for flexibility as Offset benefits will be lost.

Any perspective or suggestions please? Thank you again

With no savings the interest in year 1 on £200,000 would be £3,900 for the offset mortgage and £3,000 for the repayment mortgage, a difference of £900 to make up by using the offset savings on which you will effectively get and interest rate of 1.95%pa.
Assuming you can get 1.5% anyway on your savings elsewhere you need to deposit enough to make £900pa via the extra 0.45% you will get.
You would need savings of £200,000 to make £900 at 0.45% so the offset mortgage is never going to be worthwhile at 1.5% - 1.95% interest rates.

zagubov

We switched from a FD offset to one of their repayment ones (5-year fix). We had found the offset flexibility really useful but we were paying a premium for it interest-wise, so we realised by finishing our mortgage at their repayment mortgage rate we'll save over £30k over the remaining eight years.

No regrets.

We were slightly tempted by Coventry's rates; we'll look again when our fix ends. Got to factor fees in though.

getmore4less

With offset "effective" savings rate is a trap people fall into.

All you are doing is borrowing less.

With a 1.5% rate there are plenty of savings options close enough to keep the savings separate if you want flexibility.

Offsets were great in the days when you could borrow below the mortgage rate.
Stoozing £40k+ at 0% with no fees on credit cards made a mortgage shrink.

chuang6

Thank you all for your brilliant suggestions and sharing your own experience! I will call FD tomorrow and pay £450 fees to secure the five year fix at 1.5%. We will then keep enough money for flexibility with a separate saving ISA cash account. Thank you again!!

dimbo61

I think Fd want to get customers off Interest Only Offset mortgages and onto repayment mortgage so your balance is reducing each year.
Less chance of customers claiming mid selling if the mortgage gets paid off

sebtomato

chuang6 wrote: »

They can offer me 1.5% 5 year fix for Repayment like 15 years. It saves a lot of Interest money, but I lose all the access to saving and flexibility. Any advice are appreciated!! Please share your thoughts.

You need to also remember that you get unlimited over payments with First Direct, meaning you can overpay your mortgage as much as you want, without penalties or fees to pay.

I know it's not the same as an offset, where you still have access to the savings, but maybe you could use any extra cash you have to make some over-payments, while keeping the rest elsewhere.

Which such a low mortgage rate (1.5%), it's not that interesting to offset anyway. It's better to invest spare money elsewhere, which would easily beat the 1.5% rate.