Any lender allow overpayments/underpayments/refund of overpayments

IAMIAM

It seems like no lender does anymore more.

I would like a mortgage I can overpay, but if needs be draw that overpayment money back out if needs be, it seems I can only see Barclays allow underpayments and thats it?

Offset seem non existent or extortionate rates?! Scottish Widdows and First Direct no longer even do offset. Any advice on product lenders?

PropertyGuru_Wannabe

YBS has offset Mortgage 4.46% fixed until 30/11/2030 and £995 product fee.

amnblog

There are a handful (and just that) of Lenders on the market that let you overpay and underpay. They call it offsetting.

jifmoose

We're with Barclays and have some experience with this.

That's right, Barclays have a (slightly opaque) overpayment mechanism that allows relatively generous overpayments, which then go into a separate "overpayments balance". Mostly this shows as a reduction of the mortgage balance and reduces the interest payed: but it is indeed possible, on demand, to set up an underpayment which is funded from the overpayments balance. It's a simple online toggle and as long as there's enough in the overpayment balance I don't know of any restriction to how much you can underpay (we've never tried it, so I don't know if it's possible to underpay all the way to £0). The important thing: it's impossible to get money back out the "overpayment balance" account once it's been overpayed. So that's the critical difference from a true offset.

It also happens we attempted to product switch to an Offset mortgage with Barclays (in 2021, I think). This was shown just plainly available in the website interface for making the switch at the end of our fixed rate - after doing the maths it would have been very favourable to us, so we went ahead and clicked it. Normally that's it: everything just changes automatically. But this time, it started a chain of more and more complex interactions: talking to their internal advisors, and eventually escalating to getting solicitors (!) and surveyors (!!) involved. Bizarre, since it was the same property and nothing had changed.

We ended up giving up on the offset, complaining and actually getting a small amount of compensation for (rather a lot) of time wasted. It became clear that they really, really did not want people on the offset mortgage. Fine, but I wish they hadn't tempted us with it in the first place! We just got a standard fix (in about 5 minutes) after that.

jifmoose

As an afterthought: we did the product switch again with Barclays in May this year, and actually IIRC the Offset product did appear available in the list again! Not wanting weeks of hassle I didn't even think about selecting it though.

IAMIAM

So could you in effect, make maybe 24 months of over payments with barclays building up a fund of 2 years worth of mortgage payments and decide to no longer pay your mortgage (let say not work, etc for a year or 2) and just say please use my mortgage overpayment balance for the next two years (2 years worth of payments currently in overpayment balance) or is there a restriction on time etc?

jifmoose

Yes - I've not tried anything like it, but on paper I haven't seen anything saying you couldn't do that. You would need to build up a big enough overpayment balance which would require overpaying at least 2x for those 24 months. In principle that's possible, though: my last product with Barclays allowed 3x contractual amount overpayments per month without penalties. Absolutely do check any specific product you go for though to ensure the same is possible (their documentation is confusing on this: I've found the best way is to phone them up and ask, or use the web chat to get it in writing).

One peculiar thing about Barclays to be aware of: not all overpayments are treated the same, and only some go in the overpayment balance. Specifically: very large overpayments are considered a "part redemption", and directly reduce the mortgage principle - they do not feed the overpayment balance. Very large is considered >3x the contractual amount.

The time restriction is an interesting question. I used to assume that the overpayment balance would be merged into the mortgage balance upon mortgage renewal/product switch. However, with our recent switch this wasn't the case. Our overpayment balance now has >£20K in it, and was retained across switching products. In theory we can now use that overpayment balance to underpay - perhaps completely - and there would be enough in it to last for over 40 months. If you were going to go for a short term product, e.g. 2 years, it would definitely be worth double-checking this though.

Interestingly the overpayment balance was not used to recalculate our contractual monthly amount (even though it is counting towards paying off the mortgage and reduces the interest we pay). In fact Barclays nearly always (through the website, app, etc) do not show the overpayment balance: they simply state the net total owed.

One note that bothers some people: it seems the overpayment balance is not covered by the usual £85K FSCS guarantee. I am not really certain what would happen if Barclays went broke. Personally I consider this to be a negligible risk, but just for awareness.

jifmoose

Barclays have actually improved their explanation of this since I last checked: https://www.barclays.co.uk/mortgages/existing-customer-centre/overpayment-underpayment-explained/. Just one thing I note: they do say they "will give you a call" and must agree before any underpayments go through (so it looks like I'm now wrong about it just being a simple online toggle only). So it does seem to be at their discretion (I can't give any idea of how stringent they are here as we've never tried it, sorry).

IAMIAM

I like the idea of offset, I like the idea of underpaying whenever I decide because I can and for however long and however much I like, because I can. The only problem is probably that Barclays do not allow withdrawal whereas somewhere like YBS do as its proper offset.

It seems the only two lenders worth considering is YBS and Barclays. YBS is proper offset but rates arnt great in my opinion. Barclays seems favourable as they are very competitive rates wise, competing with HSBC (who I am currently with). Barclays actual offset products are pants imo. High rate and High Fee. Exactly what First Direct used to be like and now no longer do offset.....the issue I have is 2 yr fix or 5 yr fix.

Another issue that annoys me is Barclays do not do execution only applications and that infuriates someone like me in todays modern world.

silvercar

Coventry BS allow an offset pot that you can withdraw from without penalty. You are always going to have to pay the monthly mortgage amount.