Offset mortgage to retain ISA wrapper, or repay?

MountVrmac

I’m 42, single, earning £55k and doing the usual MSE things: maxing matching pension contributions (and on-track to be comfortable) and regularly investing into an S&S ISA.

I have a £50k interest-only mortgage fixed at 1.6% until November 2026. I’ve also saved £50k in Cash ISAs with the intention of repaying it.

I’m now reconsidering that because of the planned Cash ISA allowance changes for under-65s from 2027. I’d rather preserve the £50k Cash ISA wrapper, particularly as I also have a similar amount in S&S ISAs which I may use to bridge the gap between stopping work and drawing my pension over 10–15 years time.

My proposed strategy is to take a 5-year interest-only offset mortgage (5.2%), move the £50k from the Cash ISA into the offset, then temporarily move £50k back into the flexible ISA around each 5 April to preserve the wrapper, returning it to the offset on 6 April.

I’d save another £50k over the five years (£833/month), gradually rebuilding the Cash ISA, and repay the mortgage from the offset at the end of the fix.

The alternative is investing the £833/month into an S&S ISA.

I appreciate that paying off the mortgage and investing going forward may produce a better return, but it would leave me with only ~£6k cash outside my investments.

Is this a sensible way to preserve the ISA wrapper while effectively keeping the £50k available for the mortgage repayment, or can anyone suggest alterations?

tetrarch

Your existing Cash ISA's and £12K per year of new Cash ISA investments will remain tax free

Regards

Tet

Yorkie1

There is a regular poster on here who has used an offset approach well. Just trying to remember who it is.

@masonic might it be you??

masonic

https://forums.moneysavingexpert.com/discussion/comment/82110958#Comment_82110958

It wasn't me. I did recently use a flexible S&S ISA to fund a house purchase for cash-flow reasons, but there wasn't a mortgage involved.

I think the OP's approach is reasonable, but I would push back slightly on the reality of withdrawing just before the end of the tax year. It should probably not be cut so fine. This year the last working day of the tax year was 2nd April, and it probably would have been prudent to withdraw at the end of March to be sure of getting the money in good time to make the replacement subscription. The flexible allowance is easily lost if there are delays.

But the alternative is to use the £50k to pay down the mortgage, save £833/month into a cash ISA for as long as is needed for a decent emergency fund, and/or rebalance the S&S ISA to include lower risk investments, such as a STMMF or perhaps some gilts that mature at appropriate times. This will cause you to lose the opportunity to earn interest on borrowed money, so it is worth calculating mortgage costs for the offset vs best conventional mortgage to make sure the difference is worth the hassle.

poseidon1

https://forums.moneysavingexpert.com/discussion/6680266/offset-mortgage-to-retain-isa-wrapper-or-repay

Preserving your cash isa by moving it out and then back in before expiry of the flexible isa year, sounds entirely sensible to me.

Preserving and building up your ISA as income tax rates increase, and the personal allowance remains static, is essential in helping to secure as large a tax free income in retirement as you can muster.

I am in no doubt that ISA millionaires did not achieve that status by squandering their ISAs repaying mortgages .