Whatever Happened To Offset Accounts?

Sleekit

I was reminded of these accounts today, where your mortgage was essentially a giant overdraft on your current account. I think Virgin was a big proponent of them early in 2000s. The idea was that you would pay less interest on your mortgage because you had all of your current account money bringing the overall total down.

They seemed to disappear rather quickly though, so what happened to them? Were they just unpopular? Were they a big scam? Were they regulated out of the market?

400ixl

Offset mortgages still exist, relatively small number of providers ever did them.

First Direct are one, think Yorkshire Bank are another.

friolento

Very good question.

I loved my Virgin One account as it gave me incredible flexibility. I could withdraw a 6 figure sum from my Virgin One  account with zero notice. Sure, it was a loan secured on my property but I did not have to go through any eligibility checks.

I can understand bank didn't like people to decide by themselves how much of their property they'd put at risk.

Veteransaver

I used to have one. It was actually a fixed rate too so technically you could fully repay it with out any penalties, without actually redeeming it obviously.
I fully offset it before the GFC, then it turned into a tracker at end of 3 years so I took all the savings out the offset and earned more in interest elsewhere.
They often aren't the best value though Vs just overpaying on cheaper mortgage. And with low interest rates I suppose they fell out of fashion but could make a comeback now.

Hoenir

Virgin One accounts weren't the same as offset mortgages. Ultimately proved too flexible. RBS ended up paying some customers compensation. The account wouldn't meet post GFC mortgage regulations. From another era when regulation can best be described as light touch. We all know what the result was in the end. 

blue.peter

They were absolutely brilliant. Many years ago, I used to have a First Direct Offset Mortgage. (I was talked into considering it when I phoned FD about an unrelated matter. Once I'd read the literature, I switched to one. That was one of the best decisions I ever made. I ended up paying off my mortgage years before I would otherwise have done.)

It sounds from what you say as if they've gone walkabout. I'm sorry to hear it. I can't believe that the problem is regulatory. More likely that the banks don't find them profitable enough.

Flugelhorn

I loved the offset mortgage - (RBS) - never spent any of the reserve, but had a fair amount of self employed income and used to stick the whole lot in the offset account until the tax man wanted some, meanwhile it decreased the amount of mortgage interest payable - paid off the mortgage much quicker than I would have done 

Green_hopeful

I looked at some the other day and they were very expensive rates of interest. 

friolento

Hoenir said:

Virgin One accounts weren't the same as offset mortgages. Ultimately proved too flexible. RBS ended up paying some customers compensation. The account wouldn't meet post GFC mortgage regulations. From another era when regulation can best be described as light touch. We all know what the result was in the end. 

I loved my One Account.

artyboy

Still got mine... been running at a zero balance for the past 10 years and it still has 6 more to run. But I'm damned if I'm paying the early redemption fee.

hugheskevi

I'm planning to buy a house using an offset mortgage in the next year or two, using Yorkshire Bank. The rates are not competitive, but the product design suits my circumstances.

I have a mortgage free house that I will sell and purchase a slightly cheaper house. I will be aged 47 and will retire after moving into the new house, but cannot access pension until age 55.

Using an offset mortgage means I can purchase a house without a chain if I wish without having to withdraw ISA investments, then sell my current house without a chain and fully offset the mortgage. I then have a large pool of money I can borrow from for contingencies should I unexpectedly need a large sum of money before age 55. As any borrowing that isn't offset will be brief, the uncompetitive interest rate isn't such a concern.