Barclays Fixed Mortgage: can you still regularly overpay without ERCs?

jifmoose

I know this has been asked before, and I've previously used this approach with success on our Barclays/Woolwich Tracker mortgage. But it seems almost too good to be true, and I'm wondering if anyone can confirm this is still the case for a fixed rate standard residential mortgage.

So, it isn't very clearly documented, but it's been quite possible in the past to overpay on Barclays mortgage repayments even by quite large amounts without incurring any Early Repayment Charges - even if ERCs are defined in the contract (e.g. 2% of everything over 10% of the principle).

The way this seems to work is that any payment that is less than 3x that of your contractual monthly payment is not treated as a capital repayment. Instead it goes into something called an "overpayment balance". You do not pay any charges on this, but it does decrease the total balance of the mortgage and what you pay interest on. Upon remortgaging, the content of this "overpayment balance" seems to get merged with the principle, and our contractual monthly amount (not the term) gets reduced.

What this means is that if your contractual amount is £600 per month, you can in theory pay an additional £1800 without incurring ERCs. We have been doing this for the last 2 years on our tracker with no problems. (How often can you do this? I have only ever tried it monthly - but some people claim you can do it every working day!)

My question is: is this still possible for a fixed rate mortgage from Barclays? Everything I read suggests it is. However, the ERCs/limit are lower for e.g. the 2 years fixed.

Cheers!

jifmoose

As further information I have seen these two different types of payment listed distinctly on the mortgage transaction: smaller (<3x contracted amount) are listed as "payment", and large repayments (>3x) as "part redemption".

Oh, and another nice thing: Barclays allows us (on our current tracker) to repay any amount in the last 90 days before the initial rate ends without ERCs! I had to check this twice, now have it in writing, as I previously thought it was only in the last 30 days.

One thing puzzles me here - what's in it for the bank? And why do they keep so quiet about it? It's a really excellent - even generous - offer. If I were them I would really advertise it as a great advantage!

la531983

jifmoose said:

What this means is that if your contractual amount is £600 per month, you can in theory pay an additional £1800 without incurring ERCs. 

Can someone else confirm if this is true or not? If so it would be amazing, I am currently paying an extra £500 a month off mine (Barclays fixed) however at some point next year my balance is likely to go under £60k (so 10% of that is what I am overpaying in a year), so this would be a useful feature if my overpayments arent going to attract ERCs

Hoenir

If the money in the overpayment account is used to reduce the mortgage balance then ERC's still apply. 

From the lenders perspective money held in the overpayment account reduces their exposure. As the Contractual Monthly Payment is maintained. Unlike a lump sum overpayment where the CMP is recalculated to repay the mortgage over the contractual term. 

Barclays can use the money to lend to other mortgage borrowers. ( Banks leverage their lending using Fractional Reserve banking, not a simple equation of deposits = lending)

la531983

Hoenir said:

If the money in the overpayment account is used to reduce the mortgage balance then ERC's still apply. 

Which mine does going off the displayed balance on the Barclays app. 

Can Jifmoose quote his source for his statement that paying in 3 times the monthly balance doesnt attract ERCs?

Hoenir

la531983 said:

Hoenir said:

If the money in the overpayment account is used to reduce the mortgage balance then ERC's still apply. 

Which mine does going off the displayed balance on the Barclays app. 

To clarify my earlier comment. The money is physically transferred from the overpayment account to the mortgage account. Not simply offset.

When the overpayment account balances reaches the mortgage account balance then the mortgage is then repaid and discharged 

la531983

Hoenir said:

la531983 said:

Hoenir said:

If the money in the overpayment account is used to reduce the mortgage balance then ERC's still apply. 

Which mine does going off the displayed balance on the Barclays app. 

To clarify my earlier comment. The money is physically transferred from the overpayment account to the mortgage account. Not simply offset.

When the overpayment account balances reaches the mortgage account balance then the mortgage is then repaid and discharged 

Would still like some clarity on the original claim. If i can still happily pay £500 extra a month when my balance is below £50k, I would like to do so.

jifmoose

Thanks both. So here's a couple of links with people talking about applying this approach: interestingly I note these both apply to a Fixed rate contract:

• Overpayments on Barclays mortgage (forums.moneysavingexpert.com/discussion/6603260/barclays-fixed-mortgage-can-you-still-regularly-overpay-without-ercs)

•  From these Forums, 2022

• Barclays mortgage early repayment charge loophole? (www.reddit.com/r/UKPersonalFinance/comments/165iyza/barclays_mortgage_early_repayment_charge_loophole/) Reddit, 2022 

Apologies I can't post proper links.

Obviously always worth taking other's reports (especially on Reddit!) with a pinch of salt, but in these cases they seem to be backed up with confirmation from Barclays via telephone or chat.

Thanks that's interesting that the ERCs may apply when the overpayment account is used to reduce the offset balance. It's worth noting that this does not seem to happen in the lifespan of the initial rate - it does then happen at the end of the initial rate. Presumably because of the other rule Barclays have (that ERCs do not apply for repayments of any size? in the last 90 days) then no ERCs are applied then.

jifmoose

Sorry should read: "ERCs may apply when the overpayment account is used to reduce the mortgage balance."

jifmoose

la531983 said:

Hoenir said:

If the money in the overpayment account is used to reduce the mortgage balance then ERC's still apply. 

Which mine does going off the displayed balance on the Barclays app. 

Can Jifmoose quote his source for his statement that paying in 3 times the monthly balance doesnt attract ERCs?

Yes - this is the rather unclear/surprising thing about this. In nearly all the places where the mortgage balance is presented, the amount includes subtracting the overpayment balance - certainly this is the case in the app and website. It does make it look as if the actual mortgage balance is reduced, and certainly that's what you pay interest on.

I believe though that Barclays maintains a logical separation of these pots, at least for the initial term of the mortgage. Mortgage statement (paper) documents tell you the total size of the overpayment balance (though even these, confusingly, list the total amount owed as "outstanding balance" with that subtracted).

At the end of the initial term or when you remortgage, those pots do seem to be merged. As Hoenir rightly says, up until that point the CMP remains the same - recalculation only seems to occur at that point (or if other large redemptions take place).

Thanks for the explanations of why this is worthwhile to the bank!