Tom Bland, associate at Savills Private Finance, said: “Although it is correct that offset mortgages can help in paying off your mortgage early, I would hate for the general public to be of the opinion that these are the only mortgages where this is possible. Homeowners need to ensure that the mortgage they take is most suitable to their circumstances.
"Many taking out an offset mortgage mistakenly do so believing it is the best means for paying off their mortgage early. However, whilst offset mortgages have many great benefits, they are perhaps unsuitable for the majority of borrowers who would gain greater value elsewhere."
SPF said it would advise anyone currently using or considering an offset to bear in mind:
Offset mortgages are not the only type of mortgage that allows borrowers to pay off the mortgage early. Many other products allow borrowers to pay-down lump sums without suffering a penalty.
Initial low rates on offsets rarely last longer than six months, following which the underlying rate tends to be priced higher than discounts or trackers. Those looking for savings here might wish to look elsewhere.
Very few offset lenders offer fixed rates. If borrowers are concerned by rising rates, an offset might not be best for them.
Offset mortgages are better suited to higher-rate taxpayers and aren’t so beneficial to the majority of borrowers paying standard-rate tax. If a borrower falls into the latter category, essentially the real cost of the mortgage is more expensive.
Choosing your own repayment levels each month, as opposed to a fixed amount being withdrawn from your account, makes it very tempting to delay repayments and possibly prolong the repayment period. In the long-term, actual repayments on an offset could be more expensive.
In order to gain the full potential of an offset, the borrower must switch all their accounts to those of the lender – possibly losing the benefits or value for money previous accounts offered, for instance a lower rate of interest on a credit card or larger overdraft facility. Borrowers should consider all the costs of making the switch.
