Interest-only/ Offset Mortgage

garrington

Hello,
I was made redundant from my job in November, and currently have no income. I have an interest only ‘offset mortgage’ where, when I was working, I built up funds each month to ultimately pay off my mortgage at the end of the term. (Whilst I have an Offset Mortgage, the principle is the same as somebody who has an Interest Only Mortgage and is building-up funds to pay it off.) When I applied for Universal Credit, I was told that these mortgage funds were considered to be savings.
I understand how these funds must appear to many people, because they are sitting in a savings account. However, they have been built-up to pay my mortgage at the end of the term, and every time I dip into the account, which I now have to because I have no other income, it’s the equivalent of remortgaging or borrowing from the bank as the money is not truly mine.
I contacted my mortgage provider to see whether I could pay off the mortgage capital I’ve built up, which will leave me with nothing, and they said that I would need to cancel my mortgage and then apply for a new product. However, I’m not in a position to apply for a new mortgage product because I do not have an income.

So, I’m stuck. I cannot apply for Universal Credit because it looks as though I have savings, so instead I am remortgaging every time I need to buy food, pay bills, etc, which cannot be right!

Somebody could be in exactly the same financial position as me, but paying off the capital part of their mortgage each month, rather than holding it like me and paying it in one lump at the end, and be able to claim Universal Credit - whereas I can’t.
Something is not right, is it?
For anybody who may think that somebody like me shouldn’t be able to claim Universal Credit, should consider the following which is the same idea...
Imagine you decide to build an extension on the side of your property. You go to the bank and borrow £30,000. The next day, you lose your job and you need to claim Universal Credit. Upon application, the adviser treats the £30,000 that you’ve just received from your bank, to build your extension, as your money - and, as such, you’re unable to make a claim and you must live off the £30,000 that you borrowed. So, you use the loan to pay for your living expenses instead of building your extension…

kaMelo

garrington said:

Hello,
I was made redundant from my job in November, and currently have no income. I have an interest only ‘offset mortgage’ where, when I was working, I built up funds each month to ultimately pay off my mortgage at the end of the term. (Whilst I have an Offset Mortgage, the principle is the same as somebody who has an Interest Only Mortgage and is building-up funds to pay it off.) When I applied for Universal Credit, I was told that these mortgage funds were considered to be savings.
I understand how these funds must appear to many people, because they are sitting in a savings account. However, they have been built-up to pay my mortgage at the end of the term, and every time I dip into the account, which I now have to because I have no other income, it’s the equivalent of remortgaging or borrowing from the bank as the money is not truly mine.
I contacted my mortgage provider to see whether I could pay off the mortgage capital I’ve built up, which will leave me with nothing, and they said that I would need to cancel my mortgage and then apply for a new product. However, I’m not in a position to apply for a new mortgage product because I do not have an income.

So, I’m stuck. I cannot apply for Universal Credit because it looks as though I have savings, so instead I am remortgaging every time I need to buy food, pay bills, etc, which cannot be right!

Somebody could be in exactly the same financial position as me, but paying off the capital part of their mortgage each month, rather than holding it like me and paying it in one lump at the end, and be able to claim Universal Credit - whereas I can’t.
Something is not right, is it?
For anybody who may think that somebody like me shouldn’t be able to claim Universal Credit, should consider the following which is the same idea...
Imagine you decide to build an extension on the side of your property. You go to the bank and borrow £30,000. The next day, you lose your job and you need to claim Universal Credit. Upon application, the adviser treats the £30,000 that you’ve just received from your bank, to build your extension, as your money - and, as such, you’re unable to make a claim and you must live off the £30,000 that you borrowed. So, you use the loan to pay for your living expenses instead of building your extension…

Firstly I would like to say I'm sympathetic to your position, to anyone in fact who has lost a job in the current climate, I'm sure it's not a great place to be.
Regarding an offset interest only mortgage, having done my own research regarding offset mortgages and taking one out some years ago I've never heard of such a thing, every single one I looked at was a repayment. An offset mortgage's positives are the ability to overpay if you can or want to and the ability to borrow more if you need to, up to your facility at least, at will and incur no penalties or costs in the process. If it's interest only then you cannot overpay or borrow more, you've taken away the good bits of an offset mortgage in which case what's the point in having one?
Stashing money in a bank account as a repayment vehicle for an interest only mortgage again is a terrible idea, in fact the whole thing is a terrible idea, it has no positives but lots of negatives. If this was an advised sale I'd have serious questions to ask of the advisor.

Putting all of that aside, Universal Credit is means tested as you know. We would all like the state to pick up the tab for daily living costs whilst keeping our own money for nice things, unfortunately that's not how things work.  People are expected to provide for themselves first and foremost, if for some reason(s) you cannot then the state will provide help. As you have money in the bank then it's not unreasonable that you use this to support yourself until you fall below £16,000 in savings, at which point the state will start to provide help.
Universal credit does however allow  you to repay any debts you have from your capital without classing it as deprivation so your example about the loan for an extension is easily solved by repaying the loan with the money loaned. The mortgage situation is more difficult as you alluded to but the principal remains the same, paying off the debt with your savings will allow you to claim Universal Credit once you reach the required level of savings.

As I said, I have sympathy but the bottom line is that you have money in the bank, what you want to allocate it to is not relevant. If you actually pay debts off rather than allocate it to those debts then you may be eligible for Universal Credit. I don't see any other options available.

Nebulous2

Who is the mortgage with, and what is is it called?

I'm not an expert, but I've never heard of mortgages that don't allow additional payments. Interest only mortgages do in my experience. 

getmore4less

This is a known risk with offset mortgages while you carry excess offset funds your  ability to get benefits is compromised.
 
With Barclays you used to be able to convert it to a secured overdraft so there were no savings but still access to the cash if needed.
(using their linked mortgage current account)

There were a couple of others that could be run that way but I think they have gone.

The next option is pay down the mortgage and reduce the amount in the offset accounts.

Most mortgages you can overpay including interest only ones  but depending on the deal there may be ERC.

Which lender? 

There is also the issue of how UC deal with  paying down debt  with assets to then claim benefits. 

getmore4less

kaMelo said:

garrington said:

Hello,
I was made redundant from my job in November, and currently have no income. I have an interest only ‘offset mortgage’ where, when I was working, I built up funds each month to ultimately pay off my mortgage at the end of the term. (Whilst I have an Offset Mortgage, the principle is the same as somebody who has an Interest Only Mortgage and is building-up funds to pay it off.) When I applied for Universal Credit, I was told that these mortgage funds were considered to be savings.
I understand how these funds must appear to many people, because they are sitting in a savings account. However, they have been built-up to pay my mortgage at the end of the term, and every time I dip into the account, which I now have to because I have no other income, it’s the equivalent of remortgaging or borrowing from the bank as the money is not truly mine.
I contacted my mortgage provider to see whether I could pay off the mortgage capital I’ve built up, which will leave me with nothing, and they said that I would need to cancel my mortgage and then apply for a new product. However, I’m not in a position to apply for a new mortgage product because I do not have an income.

So, I’m stuck. I cannot apply for Universal Credit because it looks as though I have savings, so instead I am remortgaging every time I need to buy food, pay bills, etc, which cannot be right!

Somebody could be in exactly the same financial position as me, but paying off the capital part of their mortgage each month, rather than holding it like me and paying it in one lump at the end, and be able to claim Universal Credit - whereas I can’t.
Something is not right, is it?
For anybody who may think that somebody like me shouldn’t be able to claim Universal Credit, should consider the following which is the same idea...
Imagine you decide to build an extension on the side of your property. You go to the bank and borrow £30,000. The next day, you lose your job and you need to claim Universal Credit. Upon application, the adviser treats the £30,000 that you’ve just received from your bank, to build your extension, as your money - and, as such, you’re unable to make a claim and you must live off the £30,000 that you borrowed. So, you use the loan to pay for your living expenses instead of building your extension…

Firstly I would like to say I'm sympathetic to your position, to anyone in fact who has lost a job in the current climate, I'm sure it's not a great place to be.
Regarding an offset interest only mortgage, having done my own research regarding offset mortgages and taking one out some years ago I've never heard of such a thing, every single one I looked at was a repayment.

First direct operate their offset mortgages with an interest only option, one of the major lenders, as do others


An offset mortgage's positives are the ability to overpay if you can or want to and the ability to borrow more if you need to, up to your facility at least, at will and incur no penalties or costs in the process.

That is not how most offsets mortgages work,  they net the balance across the mortgage and savings accounts and charge interest on that.

CAM mortgages like the One Account did work that way essentially a large secured overdraft.


If it's interest only then you cannot overpay or borrow more, you've taken away the good bits of an offset mortgage in which case what's the point in having one?

Most interest only mortgages allow overpayments 

Stashing money in a bank account as a repayment vehicle for an interest only mortgage again is a terrible idea, in fact the whole thing is a terrible idea, it has no positives but lots of negatives. If this was an advised sale I'd have serious questions to ask of the advisor.

They have an offset mortgage so the savings reduce the interest on the total by offsetting the mortgage balance

Putting all of that aside, Universal Credit is means tested as you know. We would all like the state to pick up the tab for daily living costs whilst keeping our own money for nice things, unfortunately that's not how things work.  People are expected to provide for themselves first and foremost, if for some reason(s) you cannot then the state will provide help. As you have money in the bank then it's not unreasonable that you use this to support yourself until you fall below £16,000 in savings, at which point the state will start to provide help.
Universal credit does however allow  you to repay any debts you have from your capital without classing it as deprivation so your example about the loan for an extension is easily solved by repaying the loan with the money loaned. The mortgage situation is more difficult as you alluded to but the principal remains the same, paying off the debt with your savings will allow you to claim Universal Credit once you reach the required level of savings.

As I said, I have sympathy but the bottom line is that you have money in the bank, what you want to allocate it to is not relevant. If you actually pay debts off rather than allocate it to those debts then you may be eligible for Universal Credit. I don't see any other options available.

If UC allow debt repayment that may offer the OP away out but they will lose access to those funds, some lenders may allow a borrow back or extend borrowing.

MovingForwards

Have you looked into claiming JSA, as your savings won't be a problem.

silvercar

There used to be 2 different ways that lenders operated offset mortgages. One had a separate savings account, as yours seems to do, the others just had one mortgage account with a negative balance that reduced the mortgage size as your savings increased. At the time when interest only mortgages were popular, a lot of these mortgages were also interest only but effectively you could make a capital payment each month higher than the amount of interest due. 

Mine is interest only. It has the option of keeping your payments the same each month, so effectively paying  the mortgage as if you have added no savings to it, the amount not needed for interest adds to the capital, or only paying the interest on the outstanding amount.

Tokmon

garrington said:

Hello,
I was made redundant from my job in November, and currently have no income. I have an interest only ‘offset mortgage’ where, when I was working, I built up funds each month to ultimately pay off my mortgage at the end of the term. (Whilst I have an Offset Mortgage, the principle is the same as somebody who has an Interest Only Mortgage and is building-up funds to pay it off.) When I applied for Universal Credit, I was told that these mortgage funds were considered to be savings.
I understand how these funds must appear to many people, because they are sitting in a savings account. However, they have been built-up to pay my mortgage at the end of the term, and every time I dip into the account, which I now have to because I have no other income, it’s the equivalent of remortgaging or borrowing from the bank as the money is not truly mine.
I contacted my mortgage provider to see whether I could pay off the mortgage capital I’ve built up, which will leave me with nothing, and they said that I would need to cancel my mortgage and then apply for a new product. However, I’m not in a position to apply for a new mortgage product because I do not have an income.

So, I’m stuck. I cannot apply for Universal Credit because it looks as though I have savings, so instead I am remortgaging every time I need to buy food, pay bills, etc, which cannot be right!

Somebody could be in exactly the same financial position as me, but paying off the capital part of their mortgage each month, rather than holding it like me and paying it in one lump at the end, and be able to claim Universal Credit - whereas I can’t.
Something is not right, is it?
For anybody who may think that somebody like me shouldn’t be able to claim Universal Credit, should consider the following which is the same idea...
Imagine you decide to build an extension on the side of your property. You go to the bank and borrow £30,000. The next day, you lose your job and you need to claim Universal Credit. Upon application, the adviser treats the £30,000 that you’ve just received from your bank, to build your extension, as your money - and, as such, you’re unable to make a claim and you must live off the £30,000 that you borrowed. So, you use the loan to pay for your living expenses instead of building your extension…

The whole idea of and offset mortgage with a savings account is that you can use the savings when you need them without borrowing and when you don't need them you can put them in the account and save money on interest. So it's nothing like "remortgaging" or borrowing money if you need to use them. 
You chose to have a mortgage where you could access savings if needed and now you have lost your job and are using them to pay for you daily living then it sounds like it's being used exactly as intended.

If you never intended to use these funds and just wanted to build up money and pay off the mortgage in full you would have been much better off just getting a normal repayment or interest free mortgage with no ERP charges and just payed what you wanted each month.

silvercar

Tokmon said:

garrington said:

Hello,
I was made redundant from my job in November, and currently have no income. I have an interest only ‘offset mortgage’ where, when I was working, I built up funds each month to ultimately pay off my mortgage at the end of the term. (Whilst I have an Offset Mortgage, the principle is the same as somebody who has an Interest Only Mortgage and is building-up funds to pay it off.) When I applied for Universal Credit, I was told that these mortgage funds were considered to be savings.
I understand how these funds must appear to many people, because they are sitting in a savings account. However, they have been built-up to pay my mortgage at the end of the term, and every time I dip into the account, which I now have to because I have no other income, it’s the equivalent of remortgaging or borrowing from the bank as the money is not truly mine.
I contacted my mortgage provider to see whether I could pay off the mortgage capital I’ve built up, which will leave me with nothing, and they said that I would need to cancel my mortgage and then apply for a new product. However, I’m not in a position to apply for a new mortgage product because I do not have an income.

So, I’m stuck. I cannot apply for Universal Credit because it looks as though I have savings, so instead I am remortgaging every time I need to buy food, pay bills, etc, which cannot be right!

Somebody could be in exactly the same financial position as me, but paying off the capital part of their mortgage each month, rather than holding it like me and paying it in one lump at the end, and be able to claim Universal Credit - whereas I can’t.
Something is not right, is it?
For anybody who may think that somebody like me shouldn’t be able to claim Universal Credit, should consider the following which is the same idea...
Imagine you decide to build an extension on the side of your property. You go to the bank and borrow £30,000. The next day, you lose your job and you need to claim Universal Credit. Upon application, the adviser treats the £30,000 that you’ve just received from your bank, to build your extension, as your money - and, as such, you’re unable to make a claim and you must live off the £30,000 that you borrowed. So, you use the loan to pay for your living expenses instead of building your extension…

The whole idea of and offset mortgage with a savings account is that you can use the savings when you need them without borrowing and when you don't need them you can put them in the account and save money on interest. So it's nothing like "remortgaging" or borrowing money if you need to use them. 
You chose to have a mortgage where you could access savings if needed and now you have lost your job and are using them to pay for you daily living then it sounds like it's being used exactly as intended.

If you never intended to use these funds and just wanted to build up money and pay off the mortgage in full you would have been much better off just getting a normal repayment or interest free mortgage with no ERP charges and just payed what you wanted each month.

I agree, but some were set up as running a reduced negative balance on your mortgage rather than a separate savings pot. These people would benefit from not having any savings registered as such. They were sometimes called current account mortgages. First Direct had such a product.

kaMelo

getmore4less said:

kaMelo said:

garrington said:

Hello,
I was made redundant from my job in November, and currently have no income. I have an interest only ‘offset mortgage’ where, when I was working, I built up funds each month to ultimately pay off my mortgage at the end of the term. (Whilst I have an Offset Mortgage, the principle is the same as somebody who has an Interest Only Mortgage and is building-up funds to pay it off.) When I applied for Universal Credit, I was told that these mortgage funds were considered to be savings.
I understand how these funds must appear to many people, because they are sitting in a savings account. However, they have been built-up to pay my mortgage at the end of the term, and every time I dip into the account, which I now have to because I have no other income, it’s the equivalent of remortgaging or borrowing from the bank as the money is not truly mine.
I contacted my mortgage provider to see whether I could pay off the mortgage capital I’ve built up, which will leave me with nothing, and they said that I would need to cancel my mortgage and then apply for a new product. However, I’m not in a position to apply for a new mortgage product because I do not have an income.

So, I’m stuck. I cannot apply for Universal Credit because it looks as though I have savings, so instead I am remortgaging every time I need to buy food, pay bills, etc, which cannot be right!

Somebody could be in exactly the same financial position as me, but paying off the capital part of their mortgage each month, rather than holding it like me and paying it in one lump at the end, and be able to claim Universal Credit - whereas I can’t.
Something is not right, is it?
For anybody who may think that somebody like me shouldn’t be able to claim Universal Credit, should consider the following which is the same idea...
Imagine you decide to build an extension on the side of your property. You go to the bank and borrow £30,000. The next day, you lose your job and you need to claim Universal Credit. Upon application, the adviser treats the £30,000 that you’ve just received from your bank, to build your extension, as your money - and, as such, you’re unable to make a claim and you must live off the £30,000 that you borrowed. So, you use the loan to pay for your living expenses instead of building your extension…

Firstly I would like to say I'm sympathetic to your position, to anyone in fact who has lost a job in the current climate, I'm sure it's not a great place to be.
Regarding an offset interest only mortgage, having done my own research regarding offset mortgages and taking one out some years ago I've never heard of such a thing, every single one I looked at was a repayment.

First direct operate their offset mortgages with an interest only option, one of the major lenders, as do others


An offset mortgage's positives are the ability to overpay if you can or want to and the ability to borrow more if you need to, up to your facility at least, at will and incur no penalties or costs in the process.

That is not how most offsets mortgages work,  they net the balance across the mortgage and savings accounts and charge interest on that.

CAM mortgages like the One Account did work that way essentially a large secured overdraft.


If it's interest only then you cannot overpay or borrow more, you've taken away the good bits of an offset mortgage in which case what's the point in having one?

Most interest only mortgages allow overpayments 

Stashing money in a bank account as a repayment vehicle for an interest only mortgage again is a terrible idea, in fact the whole thing is a terrible idea, it has no positives but lots of negatives. If this was an advised sale I'd have serious questions to ask of the advisor.

They have an offset mortgage so the savings reduce the interest on the total by offsetting the mortgage balance

Putting all of that aside, Universal Credit is means tested as you know. We would all like the state to pick up the tab for daily living costs whilst keeping our own money for nice things, unfortunately that's not how things work.  People are expected to provide for themselves first and foremost, if for some reason(s) you cannot then the state will provide help. As you have money in the bank then it's not unreasonable that you use this to support yourself until you fall below £16,000 in savings, at which point the state will start to provide help.
Universal credit does however allow  you to repay any debts you have from your capital without classing it as deprivation so your example about the loan for an extension is easily solved by repaying the loan with the money loaned. The mortgage situation is more difficult as you alluded to but the principal remains the same, paying off the debt with your savings will allow you to claim Universal Credit once you reach the required level of savings.

As I said, I have sympathy but the bottom line is that you have money in the bank, what you want to allocate it to is not relevant. If you actually pay debts off rather than allocate it to those debts then you may be eligible for Universal Credit. I don't see any other options available.

If UC allow debt repayment that may offer the OP away out but they will lose access to those funds, some lenders may allow a borrow back or extend borrowing.

I don't dispute any of what you have written, if they exist then they exist. As I said I had never seen an interest only option and I still think they are a terrible idea. In the OP's example, an offset mortgage with restrictions on what you can pay off has lost the point of an offset mortgage which is all about flexibility.  
I knew my income for the first couple of years would be decent enough but a bit irregular, hence why I chose an offset mortgage as it provided the flexibility to pay more, pay less or pay nothing at all, even borrow more if required according to what suited me, all without restrictions or fees. The only condition I had to keep to was to not breach the "maximum mortgage facility"

Mine was with RBS,a fairly simple set up with current and savings accounts x2, balances offset against a mortgage account.
In the OP's situation I could have reduced the level of savings held by paying into the mortgage account, reducing the amount owed, and therefore eligible for claiming UC. When things got better, found a new job and didn't need UC I could have re-borrowed that money, transferring from the mortgage account into a savings account.

silvercar

I won’t complain because I have a tracker interest only offset, tracking at base +0.5% for the life of the mortgage, but the savings are held in a separate pot. If you use that point to reduce your outstanding mortgage balance, you can’t get the money back. The upside is that the minimum monthly repayment is the interest on the difference between the mortgage balance and the savings pot.