Scottish Widows Offset Mortgage for a new customer

amnblog

Hi Michael, We specialise in dealing with professionals and use Scottish Widows Bank extensively.
A simple way to look at this is that the Santander interest rate is 86% of the Scottish Widows Offset interest rate. Therefore, if you are not offsetting 14% (£27,000) the offset mortgage will cost you more. If you will offset above £27,000 is it worth looking at SWB and tailoring the maths more closely. In particular if you want the flexibility to be able to access the funds easily at a later date.

Michael_Bear

@amnblog cheers! Obviously 14% is only breakeven ifnsaving rates were 0% (22% at 0.5%saving rates as stated by @getmore4less )
Other things I missed considering were
A) if I took out the non offset could some of my savings go in on it (do I really need liquidity of it all) as this would benefit non offset choice.
Bb) whats my anticipated mean in extra savings over 5 years as this would benefit the offset choice.

getmore4less

there have been some  long running thread on offsets that goes through just about everything you need ,  one is closed comments dried up because it is a less popular option now, because it is harder to make the sums work for a lot of people.

forgot to mention one advantage of the offset we have with Barclays is you could still max out your ISA allowances and offset those  and invest later when ready to S&S.

As for the offset amount needed the simple ratio option works for most cases.
You need to know the saving rate the offset rate and the regular rate to decide if the offset works.
(will skip how this is derived)

M : mortgage debt
S : standard rate
O : offset rate

C : savings capital
N : net savings rate

C/M == (O-S)/(O-N)

As savings rates approach normal mortgage rate you need 100% offset.
for 0% savings it becomes 0.22/1.61== 13.66%
(In the early days some lenders paid interest at the offset rate if over 100% offset but that got stopped)
Also this only works where any setup costs are the same, it changes with a no fee/fee comparison is also needed.

Also don't forget this is the breakeven point so if the free cash flow will get you there quite quickly it can still work starting with less.

But then you have the liquidity,  is it a nice to have or will it really get used.

If it is going to get used then you have to look at the estimated average saving over time if the money is not going to sit offset for long.

If just a nice to have there may be other option S&S ISA are still fairly liquid and should do better than the mortgage rate.
or just reduce the liquidity requirement and save or pay down debt or pension or ISA.

I worked on emergency just needs a few £1k to cover cash flow, loss of income a years worth of expenses to cover time to get new income.



One of our liquidity pots is premium bonds near(days) instant access and enough to cover any short term cashflow issue. 
Another thing we were doing was cycling money through regular savers they were paying more than the offset rate.
 
here is a post from 2012 about FD offset and that threads has loads of info/discussions.
https://forums.moneysavingexpert.com/discussion/comment/50879345#Comment_50879345

Another post in that thread had people with FD offset rates of 2.5% when 8% was available for some savings.

A lot has changed especially rates but many of the simple principles apply,, what's the goal,  warm fuzzy feelings of having a lot of liquid cash might be enough to justify small extra cost.

Michael_Bear

@getmore4less brilliant, thank you so much. 
And your last sentence is I think is true, the security and warm feeling might be worth a premium.
So if the calcs are roughly even then offset would take it.