More borrowers are applying for compensatory mortgages after the pandemic



Demand for back-to-back mortgages, which allow borrowers to reduce monthly interest payments by linking to a lender’s bank account, has skyrocketed over the past year as many homeowners seek to make the most of the savings accumulated during the lockdown.

The value of off-grade mortgages issued by mortgage broker John Charcol in the first four months of 2021 more than doubled the value in the same period in 2020 – a much faster growth rate than other mortgages.

Nick Morrie, technical product manager for John Charcol, said: “There are more people with savings who want them to work harder but not lose control of those funds. People spend money on all sorts of things – buying a second home or vacation rentals, renovating a home, paying for university tuition or getting married. ”

A creditable mortgage ties the home loan to the savings of the borrower, effectively allowing them to reduce the total mortgage balance and thereby reduce their monthly payments and reduce the cost of the loan over the life of the loan. The £ 150,000 mortgage can be offset by a £ 50,000 deposit in a savings account, which means that the borrower will only make payments of £ 100,000.

Brokers said that, in addition to cutting monthly bills, offset mortgages offer a level of flexibility that is priced higher earnings or to persons with special needs, as it can also be used as a form of credit line, placing funds at the direct disposal of the borrower.

Ultra-low interest rates have resulted in people earning paltry returns on their savings accounts, while restrictive restrictions have limited their spending options, leading to more savings. In the meantime, the rise in homework is fueling require to improve property and second house purchases.

Chris Sykes, a mortgage consultant at brokerage Private Finance, for which demand has grown 20% over the past year, said the money raised could be withheld for the intended purchase of a second home, allowing the borrower to seize the opportunity. as a cash buyer when it appeared.

Another example would be a self-employed person who expects to pay their tax bills twice a year. “This tax money could offset their mortgage while it’s not being used,” he said.

Aaron Strutt, chief product officer at brokerage Trinity Financial, said the company recently arranged a major offset mortgage for a financial trader through a private bank. “She wanted to have access to cash to become a partner in the company she worked for,” he said.

Due to their niche reputation, not all lenders offer a credit option, and most of them charge a small premium to their offset rates. The lowest current reimbursement rate is 1.19% with a two-year agreement with Scottish Widows – a lender that does not charge such a premium – with a commission of £ 999.

Financial website Moneyfacts reported this compared to a broader market rate of 0.99% on a two-year fix available for re-mortgages from lender TSB. An even lower rate of 0.95 percent was announced Friday by the platform, a division of the Cooperative Bank, which provides loans through brokers for two years with a commission of £ 1,499 for those with at least 40 percent equity.

Sykes said the “classic” offset real estate client has higher income and significant housing capital. Many seek to maximize their monthly savings by taking out an interest-only mortgage. “If you are borrowing £ 500,000 only on interest and you have £ 500,000 in this account, your monthly payment is zero,” he said.

To be eligible for such interest-only transactions, a single applicant would generally need to earn at least £ 75,000 or £ 100,000 per couple, with more than £ 400,000 in ownership or an alternative means of repayment such as savings or other investments.

Andrew Montlake, managing director of brokerage company Coreco, said: “It’s not for everyone, but for those who clearly benefit from it, it works really well. The problem with offset mortgages is that few people know about it and few brokers discuss it with clients. But when people have accumulated so much in the past 12 months, this is a product to look at much more than it actually is. “


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