Barclays Offset mortgage customers – TAKE HEED!

by Mark Alexander

9:25 AM, 15th April 2013
About 6 years ago

Barclays Offset mortgage customers – TAKE HEED!

Make Text Bigger
Barclays Offset mortgage customers – TAKE HEED!

Barclays Offset mortgage customers - TAKE HEEDAround 1 million Woolwich and Barclays Offset customers are to be affected by the changes to their offset reserve accounts.

I am looking into the detail of this as it might well affect landlords who are using these accounts in the belief that they are a “safe haven” for their liquidity reserves.

Many of these mortgages are linked to pre-credit crunch low rates of interest. Nevertheless, given that money invested into offset reserve accounts tied to mortgages, some borrowers believe that it makes sense to utilise the facility to reduce their mortgage interest as opposed withdrawing the full facility and investing  the cash elsewhere.

My concern is that landlords might find themselves high and dry when they come to access this cheap money as a deposit on another property or for essential repairs and maintenance of their property portfolio’s. This may put landlords into ‘dire straights’ if they need the money quickly as the only way forward might involve refinancing. You can also be pretty sure that any remortgage will be more expensive too. It’s not just the interest rate you need to worry about if you remortgage though, there will also be costs, and that’s assuming you can even get a remortgage in this difficult market!

Obviously the proposed changes make sense to the bank. Whether you have used the available credit or not the bank still has to treat the debt as committed and hold funds on reserve. If you are not borrowing they are not making money. They can also lend new money out at far higher rates than they might earn if you draw the full balance of your pre-credit crunch facilities.

If I had one of these accounts now I would be withdrawing the maximum possible amount of funds and depositing it with other banks which are not connected to the Barclays Group before it is too late.

Remember, if your cash reserves are greater than £85,000 it is advisable to deposit your funds with multiple banks in order to benefit from the £85,000 guarantees on your money if the banks were to collapse.

 



Comments

10:00 AM, 15th April 2013
About 6 years ago

Mark, what is Barclays proposing to do? You have not mentioned that in your post.

Thanks, Simon.

Mark Alexander

10:03 AM, 15th April 2013
About 6 years ago

I'm still investigating the details but I've been told they will cap lending as current levels on these accounts.

Anon

18:10 PM, 15th April 2013
About 6 years ago

Here's the text from an article written by David Budworth, Deputy Money Editor of The Times on 12th April 2013

The Trust of Borrowers Is Being Betrayed

Do you remember reading the T&Cs when you applied for your last mortgage? Quite probably. But can you remember every nuance, every clause? Of course not.

As long as you grasp the big picture — how much it costs, when it needs to be repaid — the tendency when faced by page after page of legalese is to trust that the small print will not do you any harm. That were there any bear traps they would be prominently brought to your notice.

Sadly, Barclays has yet again proved that trust cannot be allowed to come before profits. That it has no problem weaselling out of a contract signed by up to 900,000 customers. These borrowers were told that any money they paid off their Open Plan mortgage could be drawn upon at a later date. Now that perk is to be arbitrarily cut.

Barclays already has form with such actions after it pulled the plug on similar flexible features last year after acquiring 44,000 borrowers from Standard Life. Just as it did then, it has used the excuse that hardly anyone uses this special borrowing facility. More likely it is worried that as confidence improves more customers will wake up to the fact that they can borrow at very attractive rates.

Barclays’ defence ignores the fact that, whether or not a customer has used the facility, this is what they signed up for. In the late Nineties and early Noughties the borrowing feature was promoted heavily as a panacea for those with irregular earnings and others who might need cash in an emergency.

There is a bigger issue here coming just weeks after Bank of Ireland’s damaging decision to increase its tracker rates. Disappointingly, in that case, Martin Wheatley, the boss of the new Financial Conduct Authority (FCA), gave his backing to the bank — which is making a bid for more of your custom providing a new current account for the Post Office. In a letter he said: “We did not identify any concerns which led us to believe the terms may be unfair.”

Lenders are able to point to clauses and conditions that allow them to cut perks, increase rates, and even demand repayment in full. You may have spotted them on your read-through but dismissed them as measures that would never be invoked.

Now they have, Mr Wheatley could restore some credibility by making one of his first major actions at the FCA a move to outlaw such pernicious clauses. A contract should be an agreement that gives a borrower certainty, not a licence to give lenders free rein.

Puzzler

10:03 AM, 16th April 2013
About 6 years ago

In nutshell: Barclays are reported to be withdrawing the drawdown facility in their offset mortgages, that is, if you have built up reserve in your associated current account (effectively an overdraft) which you have not used, the facility to do so will be removed. cahoot and others did the same as they closed flexible products. This was never a Barclays product - they acquired it when they bought the Woolwich and at that time some of the facilities were removed from the accounts, such as the option to have several savings pots. It was only a matter of time. It will be interesting to see whether other offset mortgage lenders follow suit.

Nick Pope

15:49 PM, 16th April 2013
About 6 years ago

Re: Barclays( ex-Woolwich) offset mortgage reserve facility.

Barclays have tried to remove the facility beforew. A t that time we had to positively state we wanted to retain it - I think the wording was one of these "You need do nothing else and we will take back what we contracted to provide you with...." Obviously we told them we wanted to keep it though at the time the rate was not that attractive, being the same as the mortgage

I had the letter from Barclays about 3/4 weeks ago saying that they were going to withdraw the reserve facility which could be used at any time as, effectively, an overdraft facility.

Being a cynic I called them as this was supposed to be a measure to ensure prudent lending!

I have a facility of well over £60,000 and why? Because I've been careful, used the offset facility to it's maximum and paid off a large amount in a fairly short time.

After the initialattempt to remove the facility I have made use of it twice when doing property refurbs because the interest rate is only 1.25% (0.75% over base) which compares well with their normal rate for property development which was about 6% last time I used it.

When I called them I mentioned to the Barclays rep that this ws obviously the reason as they did not wish to lend to me at such a low rate and it was nothing at all to do with lending policy - her defence was that they did not want me to get into problems by having a large mortgage I could not afford to pay off. It's not that large by today's standards and is only approx. 50% LTV and without the offset considerably lower. Also it's part repayment and part interest only so the balance will continue to reduce.

So, says I to the nice young lady at Barclays, my record of effectively over-paying every month for years means that I am at greater risk of default at the end of the term than someone who has paid off nothing and thus has no facility available?

Rep had no sensible answer to that one.

So what, I ask, if I am just about to do another re-furb and I take out the funds before the deadline (May 16th I think though I'm on holiday and have not got paperwork to hand)?

Nothing we can do she said.

And if I do that, what happens when my next pay or other lump sum goes in - is this immediately eaten up in re-paying the reserve facility which has, by then, been withdrawn?

No, it is a current account and we can't do that.

So I have reached the following conclusions:

1) If you have no reserve facility available then you are unaffected and

2) If you have a facility of any significant amount then think about using it for something else.

I will do the re-furb and on completion I will look for other opportunities - where else can you borrow £60,000+ for only 1.25% with no additional security? As long as it's accessible in a reasonable period I can use it to pay off the mortgage at the end.

I might even go into the banking business and purchase some Barclays shares using their own money!

20:03 PM, 18th April 2013
About 6 years ago

Just so I have got this correct, I have an offset mortgage with Barclays (ex Woolwich) and regulary run the mortgage current account up the max overdraft facility to buy a property before refubishing and then remortgaging through another lender, the subsequent funds put back into the Barclays mortgage current account to bring it positive again and wait the next property.

Is it this overdraft facility they are planning on taking away?

Mark Alexander

20:33 PM, 18th April 2013
About 6 years ago

@Graham - I believe so yes!

Nick Pope

22:59 PM, 18th April 2013
About 6 years ago

Yes that's it exactly.

However I had my letter nearly 4 weeks ago now and I'm surprised if you have not heard anything from them if your situation is the same as mine.

I'm afraid all the paperwork is 3500 miles away so I can't compare notes as to when the mortage was taken out - it may be that the wording was changed at some point.

4:46 AM, 19th April 2013
About 6 years ago

Okay, I work overseas so have not checked my snail mail for the last couple of months, so maybe I have same letter. They have not asked before about this but will get someone to check my mail. Think best idea is as Mark suggests to transfer to another bank so at least it is clear and ready to go.

Julie Kirby

7:09 AM, 19th April 2013
About 6 years ago

HI

Now I'm a confused Barclays offset mortgage customer. I too received a letter and also telephoned for clarity and happily thought my facility was safe until reading these posts. We owe Woolwich £160,000 on an interest -only mortgage at 0.89%which is linked to a Barclays current account which also currently holds £160,000 until we decide to make temporary use of it. There is a reserve limit on the current account of just £100, effectiveley an overdraft facility, and I thought only this was being withdrawn.

1 2 5

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Will you pay tax on your finance costs this year?

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More