Offset mortgage decision drama! Advice please?

Parisian

I currently have a fixed rate mortgage at 1.89% coming to an end on 31.01.23. I have approx 217k outstanding, and was ideally looking to borrow more say around 245k but this is not absolutely essential. I have about 130k in savings to offset, most of it in an ISA tax wrapper. 

I am deciding next steps, and although I liked the the Barclays offset product at +1.22 above base rate and that it has a wide range of accounts you can link to offset (current account, ISA, savings accounts) and a lowish early repayment charge at 1% if I need to get out. If I need to ever go for the consent to let option (which I may need towards the end of the two years, not clear right now) they don't seem to add on any extra percentage to the mortgage rate, as far as I can tell.
The things that put me off are the high arrangement fee at 1749, that they will match my current mortgage but not any extra borrowing, and that they seem to be a trickier lender and slow at processing applications at the moment. 

My broker has suggested to me the Accord offset mortgage (accessible via broker only) at 5.86% fixed for two years. They will lend me more at 245k, and the arrangement fee is £995 with £250 cash back. They have a higher early repayment charge at 2.5% for the first year and 1.5% for the second year.
The drawbacks for me here are that for any potential consent to let later down the line they add on 1% which would take the rate up to 6.86% (I know this is common, but I mean in comparison to the Barclays offset product above having no extra charge currently for consent to let), they only have a savings account to use to offset and not a current account or ISA, and most importantly 5.86% feels quite high! Base rates would need to go to 4.64% or above for it to worth it over the Barclays product. 

The other complication I have just realised is that Yorkshire Building Society (linked to Accord) take direct applications without a broker, and have the same product as the Accord one above with a few differences: their rate is 5.87% instead of 5.86% (very minor difference which doesn't bother me), and they also have a type of offset savings account where family members can save in their own account and offset your mortgage (which may be useful for me and important down the line), and they have no arrangement fee for going directly. 

I am trying to decide what to do and would be really grateful for any advice on the following:

1. Is 5.86% really quite high at the moment and to be locked into for two years? This rate makes me think I should just consider a regular tracker (without offset option) and take the risk of a tracker and forget all about offsetting!

2. I am really grateful to my broker for the all the work he has done - if I chose to apply directly to YBS (esp so I can have the option of family members using accounts to offset my mortgage), how should I handle that conversation? I feel pretty bad! Also, I am worried about going it alone and not sure if YBS will let me borrow more until I ask - if YBS don't let me borrow more, I will have been disappointed not to try the Accord option via my broker. 
Any tips/thoughts here?

3. I am drawn to the Barclays product but the arrangement fee feels very high in comparison to the two other options I have above, but overall it is a good product and cheaper to get out of. What do others think of this product? 

Thanks so much for any wisdom!

housebuyer143

I looked into this month or two ago and decided not to do the offset. Mortgage rates are higher on the offset and with savings rates being so good you'll find you can probably get a cheaper mortgage rate and put your savings into a high interest account and get almost the same as if you were offsetting it. But you're saving on the interest you're paying on the mortgage.

I see the appeal of offset but it's probably not worth it if you're paying half a percent or 1% higher in the initial rate. To put it in perspective, you can get a tracker 0.4% above base with a 1995 fee at Skipton on a standard product which is significantly cheaper than Barclays. You would be paying 3.4% and you can then put your money in a high interest savings account paying close to 4.5, 5%.

If I wasn't already with Skipton on a slightly higher tracker I would be taking that deal straight away lol. 

housebuyer143

To add, YBS are brilliant. You don't need to worry about going it alone. Check the affordability calculator and they will lend you normally 4.5x, your income.

Parisian

Thanks so much housebuyer143! That's good to know about the Skipton tracker. 

The only thing is I am a higher rate tax payer so after £1000 I will be paying tax on any savings interest gained and having to submit a self assessment. 

That's a stark difference between 3.4% and 5.86% though!

housebuyer143

Parisian said:

Thanks so much housebuyer143! That's good to know about the Skipton tracker. 

The only thing is I am a higher rate tax payer so after £1000 I will be paying tax on any savings interest gained and having to submit a self assessment. 

That's a stark difference between 3.4% and 5.86% though!

You might need to do a play on Excel to work out which is right for you but I wouldn't fix at rates 4%+ so the tracker would be my only option I recommend. And then at this stage I wouldn't fix on a tracker that high over base with that fee.
Ultimately it was the high fee that put us off the offset with Barclays and caused us to rule it out. We are still basic rate tax payers for now....

You don't get many lenders to choose from on the offset so the rates are not particularly competitive. 

jenni_fer

Worth noting for Barclays that the 5yr version is only 0.03% higher, and therefore no need to pay another arrangement fee after 2 years, which helps offset the high arrangement fee. 

This is the option we've gone with, like you being a higher rate tax payer and having a decent chunk to offset with makes the offset mortgage appeal.

Personal choice though,  definitely map it out on a spreadsheet!

Parisian

Thank you jenni_fer! I might have a complete change of circumstances in about two years, so was worried about locking in for 5 years unless +1.25 above base rate is good for a tracker.

Any idea if the racker has been lower than +1.22 or +1.25 in the recent past? How did you find Barclays handled your application?

What kind of things do you tend to map out on a spreadsheet? 

housebuyer143

Parisian said:

Thank you jenni_fer! I might have a complete change of circumstances in about two years, so was worried about locking in for 5 years unless +1.25 above base rate is good for a tracker.

Any idea if the racker has been lower than +1.22 or +1.25 in the recent past? How did you find Barclays handled your application?

What kind of things do you tend to map out on a spreadsheet? 

It's been 1.22% for at least the last 3 months I believe.
Found Yorkshire building society doing at tracker at 0.49% above base with no fee or 0.29 with 995 fee. That's enough to get me to move over, especially as I'll take it on interest only.

JohnTheSkier

Parisian said:

Thanks so much housebuyer143! That's good to know about the Skipton tracker. 

The only thing is I am a higher rate tax payer so after £1000 I will be paying tax on any savings interest gained and having to submit a self assessment. 

That's a stark difference between 3.4% and 5.86% though!

If you are a higher rate you will actually be paying tax on any interest over £500. The £1000 limit is for basic rate tax payers.

jenni_fer

Parisian said:

Thank you jenni_fer! I might have a complete change of circumstances in about two years, so was worried about locking in for 5 years unless +1.25 above base rate is good for a tracker.

Any idea if the racker has been lower than +1.22 or +1.25 in the recent past? How did you find Barclays handled your application?

What kind of things do you tend to map out on a spreadsheet? 

What the cash paid and remaining balance will be on a normal mortgage best buy with the savings in a standard savings acc vs what it'll be on the offset 
You can the use goal seek to find the break even points based on how much you save additional each month, what the best rates are etc etc

Parisian

housebuyer143 - that Yorkshire Building Society deal is great! Is it new today? How have I not spotted it before!