I think offsets are an amazing product – for the right client. Mr and Mrs Smith are those clients.
David is a successful London lawyer earning in excess of £1m. I have discussed many times with him the power an offset mortgage can bring. Whilst in the past it was of interest his preference was to always try and bring his mortgage down by repaying capital.
This has worked well for him. From a £1.45m mortgage we are now down to around £1.1m. A tracker rate on interest only of 1.35% means that mortgage repayments are unlikely to be a concern.
But a recent inheritance has changed the client mindset. The family received a windfall of around £700,000. They did the inevitable buy-to-let purchase to absorb some funds and made sure pensions were funded before the rules changed. But it still left £500,000 down the back of the sofa that needed looking after.
There are few places that you can place this money without either losing access or incurring risk. In a benign interest rate environment such as this, let’s just say the client didn’t bother checking comparison websites for the best high interest account.
That’s when I delivered my preferred line of “ Mr Client how would you like a mortgage which means you’ll never have to deal with me again? “ That’s how highly I rate offset mortgages as once they are taken they are rarely rescinded.
We remortgaged the client on to a Scottish Widows fixed rate mortgage . Whilst the rate is marginally higher than the tracker the full £500,000 offset would almost halve his mortgage payment whilst allowing him full access to his savings.
That’s the good news. The bad news is I have to find a new client to replace Mr Smith.
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