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A guide to mortgage reserves

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By Pete Mugleston   Mortgage Advisor

Last updated: 5th April 2019 *

Mortgage reserves explained

There’s no denying that getting a leg up onto the property is costly. Prospective buyers will of course want the most competitive rates going, and to take advantage of any schemes that can help save them money.

Some mortgage providers offer borrowers the option to offset their mortgage in some way, and there are a number of different methods in which this can be done. One way is to have a mortgage reserve account.

This article discusses reserve mortgage schemes, and will be covering:

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What is a mortgage reserve?

A mortgage reserve is an agreement between a mortgage provider and yourself whereby they agree to loan you X amount, but instead of using the whole sum straight away, part will be set aside in a separate account as “backup” for later down the line - reserve mortgage money.

Mortgage reserve products are a variation of offset and current account mortgages, combining elements of both product types.

How does a mortgage reserve work?

These products act a bit like a secured overdraft facility which is attached to your current account mortgage which you can dip into to withdraw cash at any time, without needing to re-apply for an additional sum.

It’s is essentially a secured overdraft facility on a mortgage account which allows you to borrow against the equity in your property.

Most mortgage reserve products are offered on an interest only basis and lenders usually give customers the opportunity to make payments to reduce the outstanding capital amount at any time.

What are the benefits of having a mortgage reserve account?

One of the advantages of a mortgage reserve is, as mentioned, that you don’t need to undergo the potentially extensive process of reapplying for additional funds later down the line if the need arises.

Another pro of this type of product is that you do not pay interest on the money sitting in the reserve account until you actually make a withdrawal.

For example, supposing you are loaned £100,000 but only require £60,000 initially, with the intention of using the remaining £40,000 in a year’s time. You will pay the agreed interest rate on the £60k, but the £40k in the reserve account will not accrue any interest.

If, across the period of the year you are able to develop good savings habits, you may be able to rack up, say, £15,000 in savings, meaning you can pay down the mortgage reserve balance again. In this sense, it is similar to a mortgage overdraft.

Which lenders offer reserve mortgage loans?

Mortgage reserve products are not as common as they once were and a number of high street lenders no longer offer them to new customers. These days, it tends to be more specialist lenders who offer favourable rates on these loans, and the advisors we work with can introduce you to them if you make an enquiry.

Is the Barclays mortgage reserve product still available?

The majority of questions we receive relate to one of the most popular schemes - the Woolwich and Barclays Mortgage Reserve. Questions tend to revolve around the scheme changes, interest rates, rebalancing and withdrawals.

While we may be able to help if you’re an existing user of the Barclays Mortgage Reserve Current Account, this facility is no longer available to new customers.

Other high street lenders, including Nationwide, have also stopped offering comparable products to new customers, but there are still providers out there who permit reserve mortgages or similar offerings, as part of flexible home loan plans.

These services vary by lender, so if you want to find out more information or compare mortgage reserve limits or interest rates by bank, get in touch and we’ll refer you to one of mortgage reserve specialists we work with.

How do I get the best rates from a mortgage reserve lender?

The interest rate you pay on your mortgage reserve will be the same as what you’re charged on the mortgage itself, and most lenders will decide which rate to offer you based on the following factors…

  • Affordability: To put it simply, the more you earn and the lower your outgoings, the more likely the lender is to offer favourable rates. You can read more about how mortgage providers assess affordability here.
  • Employment status: What you do for a living can also impact on how much risk you pose to potential lenders. A specialist provider might need to be sought out if you’re self-employed or earn a significant portion of your income through bonuses, commission or regular overtime.
  • Adverse credit: Some mortgage reserve providers won’t accept anyone who has any form of adverse. Others are happy to accept minor cases, and a few will consider more severe issues. Visit our bad credit page here to find out more.
  • Deposit: As a general rule of thumb, the majority of residential mortgage providers offer up to 85% loan to value (LTV), some are happy at 90%, and a few will accept 95% - depending on your other circumstances. Putting down more than the minimum might help convince a mortgage reserve lender to offer you their most favourable rates. You can read more on mortgage deposits here.
  • Age: Older borrowers can find it more difficult to get a mortgage due to higher perceived risk. Some mortgage reserve providers won’t lend into retirement at all, but the majority have minimum term lengths, or a maximum age caps. Most won’t lend to those over 75, whereas others stop at 80 / 85.

What other mortgage reserve requirements will I need to meet?

Every lender is different and will have their own mortgage reserve requirements which will help them calculate your eligibility for this type of product. Other factors that determine whether you can borrow the amount you need include...

  • You must hold equity in your home higher than the maximum borrowing level.
  • Some of these products only allow you to borrow the amount that you have already reduced your debt by through your monthly payments.

Where can I find a reserve mortgage calculator?

These tools are available on the websites of the lenders which offer them, as well as other financial hubs, but they will only give you a general idea of how much you’re able to borrow and the total cost involved.

Every lender uses a different mortgage reserve calculation, taking different variables into account, so using an online reverse mortgage calculator isn’t the best way to get a clear picture of the deals you’ll be eligible for.

A better alternative would be to make an enquiry and speak to the brokers we work with. They have access to the entire market and know which lenders’ calculators are most likely to return favourable results for a borrower with your needs and circumstances.

Why you should speak to a whole-of-market reserve mortgage broker

We’ve helped over 65,000 people find the right mortgage, even those who may have been declined a mortgage or had bad credit history.

In fact, our customers consistently rate us 5 stars on Feefo, mainly due to our high levels of service, but also because we offer offers a 5-star service with access to expert brokers who are:

  • Whole of market.
  • Have a working relationship with all mortgage reserve lenders, not just a select few.
  • Can offer bespoke advice on mortgage reserve products.
  • Already know the mortgage reserve lenders to go to as they successfully arrange these already.
  • OMA Accredited advisors.
  • Have completed a 12 module LIBF accredited training course.

Talk to a mortgage reserve expert today

If you like what you’re reading or require more information, call Online Mortgage Advisor on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.

Updated: 5th April 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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