Offset mortgages – "customers eager to learn more"

While market conditions have steadily improved in recent weeks, circumstances for homeowners are still far from the highs seen over the past few years.

This has led to growing demand for non-standard mortgage options, with offset products suiting the needs of many given the current high interest rate environment. 

An offset mortgage works by 'offsetting' the amount of money you need to repay on your mortgage against what you have in a savings account.

Offset mortgages – rising awareness

Riz Malik (pictured), director at R3 Mortgages, said because interest rates have risen dramatically, those with savings are eager to learn more about offset mortgages.

“If you do have funds to offset, you could save thousands in interest payments and cut years off your mortgage term,” he said.

Malik added that banks have also been slow to pass on rate increases to savers, so he believes not receiving credit interest on your savings in favour of saving money on your mortgage can be appealing.

However, Malik said if you do not take advantage of offsetting, you may be paying a premium for having the facility versus other products available in the market.

Natalie Hines, founder at Premier One Mortgages, also believes that an offset mortgage for the right client is a fantastic product.

“I always ensure I discuss the benefits of an offset as many clients are not aware of the features and potential savings offsetting can have,” she said.

Hines added that it greatly depends on how much the homeowner owes on the mortgage and the amount that they have in savings as to whether an offset mortgage is a suitable product.

“Given the current complexities on the market, I believe customers should speak with a broker to assess the best option; they will be able to give you advice on what is most appropriate for your personal circumstances,” Hines said.

Offset mortgages – who do they benefit the most?

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said many of his clients are barristers, a profession that is predominantly self-employed as sole traders and who generally hold large amounts of cash for future VAT and income tax liabilities, which he believes makes an offset mortgage an ideal tool for them.

“There are not many saving accounts offering clients upwards of 4% interest, tax-free, with instant access, but that is essentially what an offset mortgage is giving you,” he said.

However, Taylor-Barr said it is not all sunshine though, and added that offset mortgages generally carry a premium on their interest rate, so the customer has to be sure that the benefit outweighs that additional cost.

Lewis Shaw, founder and mortgage expert at Shaw Financial Services, said an offset mortgage can be a good option for those with significant savings who want to reduce the interest they pay on their mortgage while retaining access to their savings.

He added that offset products are good for limited company directors with large amounts of retained profit, for example.

Shaw said if you have a mortgage of £200,000 and savings of £50,000, you would only pay interest on £150,000. This can help reduce your monthly mortgage payments and the interest you pay over the term of your mortgage.

“While you will not earn any interest on your savings, you will not pay any tax on the interest you save, so it is a great way to use retained capital without tax liabilities,” he said.

Have you seen demand for non-standard mortgage options growing in recent months? Let us know in the comments below.