During 2006 170,000 offset mortgages were taken out, worth £29.3 billion - equivalent to 7 per cent of all new lending. And, the year-on-year growth of offset mortgages between April 2006 and March this year was 49 per cent (by value) - compared to just 15 per cent for non-offset lending. Offset mortgages combine a mortgage and savings in one account, and offer borrowers a number of advantages, including:
- the option to make on over-payment or an under-payment on the mortgage;
- lower total interest payments and a shorter mortgage term because the interest is charged against a lower mortgage balance;
- any savings the borrower has will earn a rate of interest similar to the mortgage rate, but are not subject to income tax; and
- any savings in the borrower's account help to reduce mortgage interest costs, which helps mitigate the effects of interest rate rises on monthly mortgage payments.
The research also revealed that the majority of offset mortgages are sold through intermediaries. Over the past two years intermediaries have seen year-on-year growth of offset products increase by more than 100 per cent in some months, and by the end of last year intermediaries accounted for 60 per cent of offset mortgage sales by value, compared to 45 per cent in April 2005.
The profile of a borrower that opts for an offset mortgage is slightly different to other borrowers, according to the research. The average age of an offset borrower is 41, and the product remains most popular with people remortgaging.
Author of the research and CML statistician Phoebe Zhang said: "Today's research reflects the dynamic nature of the UK mortgage market. Mortgage lenders are constantly developing new products to meet the needs of borrowers and the fact there are now 250 offset products available in the market illustrates this.
"Going forward, continued innovation by lenders will help to increase consumer awareness of offset products and expand the market potential for offsets in the future."
