Clients who would previously have paid off part of their mortgage now request offsets as lower bonuses hit home
Offset mortgages seem to be having a surge. This is partly tied in with the popularity of long-term trackers, but for many clients it can also be attributed to the unsure outlook for future income or borrowing.
Many of our clients who would usually receive most of their income as bonuses are now prepared to see a significant reduction in the cash that they would normally use to pay down a lump sum from their mortgage.
These borrowers are asking for received this year is available on standby, in case the next bonus is not so generous.Increasingly, clients also fear that future attempts to raise money can’t be depended on.
A further advance can’t be taken for granted as it was two years ago. So an offset allows clients to keep their cash to hand, especially as the size of the initial facility can be maximised and paid back in.
As a company that receives much of its new business from estate agencies, we see our fair share of cash buyers.
But we are having considerable success offering offset mortgages so that these buyers’ cash is available to draw on later.
Clients with a significant level of savings are also considering offsetting investments that are not providing a high enough level of returns, because savings interest income is subject to tax.
New, harsher tax bandings for high earners will further disadvantage clients with high savings interest income, thereby driving more of them to offset cash against their mortgage.
It allows customers to keep cash to hand, as the size of the initial facility can be maximised and paid back in
The term trackers are most popular – inevitably given the outlook for the Bank of England base rate and the value for money you get from paying only one fee for a long-term deal.
Clydesdale, Scottish Widows, In The Loop and Coventry have best-buy offsets, and are no less popular for having early repayment charges, showing that taking an offset is viewed as a long-term strategy.
For borrowers who want to hedge their bets, Clydesdale also allows them to mix and match with a fixed rate. At 75% LTV, the premium is around 0.5% on the annual rate to secure a term tracker offset with no ERCs. Abbey has one at 3.49% with a £1,499 fee.
Borrowers who are taking an offset because they would have otherwise bought cash, or overpaid the lump sum to reduce the debt, typically look out for a net offset – one that reduces the monthly mortgage payment, as opposed to a gross offset where the monthly mortgage payments are still calculated on the whole debt.
Woolwich allows borrowers to reduce monthly payments or the term, as do Coventry and Scottish Widows.
It’s worth finding out what little luxuries your clients are after, as lenders’ add-ons vary.
Abbey allows customers to offset savings within a savings pot, while Clydesdale offers the chance to offset savings even in a business account.