First direct customers who offset their savings as part of their Offset Mortgage could save over £5 million* off their tax bills.
With an Offset Mortgage, customers' savings work to reduce the amount of interest they pay on their mortgage debt, so they can reduce their monthly payments or alternatively pay the mortgage off earlier. As they do not receive interest directly on the savings linked to a first direct Offset Mortgage, they have no tax to pay on it.
As well as this tax saving, Offset Mortgage customers earn a higher equivalent interest rate on their credit balances. They get the equivalent of 4.50% (4.59% AER) credit interest on their current account and savings accounts if they are offset against the mortgage. This is equivalent to a credit interest rate of 5.77% gross for standard rate taxpayers and 7.76% gross for higher rate taxpayers.
Alan Hughes, first direct's chief executive, said: "Whichever way you look at it, a first direct Offset Mortgage saves you money. Borrowers pay less interest than with a conventional mortgage, or pay the loan off earlier. They are earning the equivalent of higher credit rates on their bank and savings balances by offsetting; and now we calculate, on average, a higher rate taxpayer could save around £269 a year in tax with an offset mortgage. The only mystery is why every homeowner isn't offsetting."
* Figure based on the average first direct Offset Mortgage linked balance using the first direct Bonus Savings Account rate of 3.205%, and assumes that 35% of customers are higher rate tax payers.
