The 'Beat the Base Rate' challenge encourages brokers and clients alike to find out how low a mortgage rate they can effectively receive on their mortgage by offsetting their savings, current account or mini cash ISA.
With traditional banking products, if the customer pays tax, then they don not earn the total amount of interest accrued by current and savings accounts because they have to pay tax on any interest earned. With offset, no tax is paid as the balance held in the current account or savings is offset against the mortgage balance and earns no interest. This means that the net effective mortgage interest rate is lowered.
To support the marketing, the bank is making a special 'Beat the Base Rate' calculator available on its broker and consumer website which can demonstrate the effective rate each individual could receive through offsetting.
Cammy Amaira, director of sales at Intelligent Finance, said: "Historically, many mortgage decisions have been made on headline rate alone and best buy tables are designed along these lines. Sourcing engines allow more research on available product features but are still very much driven by the headline rate of the product. Although offset pricing has reduced in line with more mainstream products, offsetting credit balances against the mortgage can seriously reduce the amount of interest payable on the mortgage. In our view, by focussing on rate alone, potential exists to miss more appropriate product choices for clients."
He added: "Although we can demonstrate total interest savings, when clients are used to hearing about headline rates and they can be come too focussed on that one area. Until now, we've not been able to demonstrate how offsetting can effectively reduce the interest rate paid on the mortgage. Our new 'Beat the Base Rate' calculator will make it easier for brokers to address their clients' concerns."
Over 50 per cent of Intelligent Finance customers who were actively offsetting last year reduced their net effective rate and beat the base rate on their mortgage. The effective rate is worked out by taking a total mortgage balance, deducting the amount held in the current account and/or savings and only charging the mortgage interest rate on the remaining balance. The reduced interest charged is then expressed as a per centage of the original mortgage balance.
Cammy, concluded: "Education has been key to the success of offset so far. The product is still relatively new in the UK market and we need to address the focus on Best Buy tables by educating on the offset benefits. The more you save, the lower the effective interest rates could be, saving thousands in interest over the term of the mortgage."
Over the coming weeks, Intelligent Finance will be running an intensive consumer and trade advertising campaign in both print and online media urging everyone to take the 'Beat the Base Rate' challenge.
