Well, except for two key stitch ups. I have a friend who has had these happen to him as well, and caused him a lot of hassle, but now it has happened to me I feel I can sensibly blog about it. It is one to watch if you have a Barclays/Woolwich offset mortgage.
The reserve limit is the amount you can draw if you need. It is the difference from current mortgage balance to the original loan amount, and operates just like an overdraft limit on an account. The actual limit obviously goes up each time you make a payment as the capital in the main mortgage account goes down.
However, it seems, they can review the reserve limit and cap it at a level around what you are using. This means if you are being sensible, and not using it, they can remove the offset totally. In my case, I am using it (I did mention 0.84% did I?), but even so, some £50k of available reserve just vanished one month!
They claim I had a letter in April "proposing" to reduce it, and giving me a choice. But as I had not replied they went ahead and did it.
The new limit was not only a lot lower, but also not increasing as I paid off the main mortgage capital!
Paying too much
The other issue is that the monthly payment does not go down when interest goes down. This fooled me as the mortgage term is show on-line based on rate you are paying, even if you are using the offset. This meant my mortgage did not have long to go, and I was starting to think that clearing the offset will be needed soon.
It turns out that I am paying nearly 3 times what I need to pay to pay off in the original term! Now, in principle there is no issue with paying off the mortgage sooner, except for another big gotcha - if you pay off the main mortgage capital early, then at that point you have to clear the reserve - even if the original term has 6 more years to run at that point! You cannot clear the mortgage capital and then go on to clear the mortgage reserve within the original term, no, you have to pay off in one go.
Mental process for reinstating offset
The good news is that I had spotted this soon enough, and got the banker in Ascot to call them. She had a nightmare with the "talk to a machine" system and was saying very clearly "Mortgage offset"... "No"... "Mortgage offset", and so on, and trying new phrases, and gave up. She got her note book with many hand written notes and numbers and called a magic number to get hold of an actual person. I am so glad I did not try calling myself!
So they explain that as I had not seen the letter they can re-instate the offset. Good. But they have to do an "affordability check". Now, bear in mind I am not talking of changing my monthly payments, so why? Also, I am not that badly off, and clearly the rate I am paying each month is not an issue, but I had to go through "How much do you pay in council tax each month" and all that crap. Ironically, he was happy for me to blatantly make up shit as I did not know that one, but the banker was helpful and checked my DDs for me and confirmed the actual figure further on in the call. I passed!
They put back the offset to what it was two months ago (no, not the same level it would have been now, so around £5k lower). Close enough :-)
As a separate step they put back the system so that it goes up as I make payments. Why is that a separate thing?
Now, I hope I don't need it, but right now I think I will grab the whole lot and put in a separate account (on the offset package, so no difference in interest paid) so that they do not grab it back like this again. I would recommend* anyone with such a mortgage do the same. Indeed, having a chunk of money in an account probably helps with your credit rating with the bank!
Now, extra stupid - he then said what the payment I would have to make if I was to draw down the whole mortgage reserve today and aim to repay by end of term, and guess what - it is LOWER than I now pay by £700/month. So why the fuck did I have to do the affordability thing!
Well, that made no sense - how could it be lower, and hang on - "original term"? I realised that the original term was a lot longer than shown on-line as the term. Why? Well, they base the term on the payments I am making, and they had not gone down with interest rates. Actually I have a lot longer on my term than I realised.
Apparently I can pay around a third of what I am paying, and have the mortgage back on its original term, allowing me some time to clear the offset I am using. All I had to do was ask!
My tips (*definitely not formal financial advice in any way, just common sense)
- Use your reserve, even if simply putting in a separate account on the offset. That stops them hijacking it.
- Read any letters you get, but don't count on getting them. Note that they have on-line record of letters now, but not 100% of letters - this is not recorded on the on-line banking apparently!
- Check the term shown matches the term you agreed, and if not, get them to lower payments. Remember, you can pay more, and you can simply put money in an offset account so that when you have enough you simply clear the mortgage in one go early, so the same as paying more like you are now, but with much more flexibility if you need it.
Once you know how this crap works, these really are a good system for a mortgage - I don't know if they do the same now (and I bet you cannot get that rate, sorry) but they are very flexible.