Offset - Why is it no longer fashionable?

by Alexander Beard, on Oct 24, 2017 12:15:29 PM

Offset Mortgages were the belle of the lending ball ten or so years ago. Innovative products from lenders like First Active and Intelligent finance were heralded as the future of Mortgage repayment.

So why has the marketing stopped?

It could be argued that as interest rates declined the benefit of the offset minimised. Also the true current account Mortgages which acted as your standard everyday current account, be it with a very large overdraft may have proved a little intimidating to many.

So are they still relevant?

A standard offset mortgage works by depositing savings with the lender which are freely accessible and any money within this account “offsets” the interest on the Mortgage. In practice if you have a Mortgage of £100,000 and have £50,000 in the savings you will pay no interest on £50,000 of the Mortgage and receive no interest on the savings. This is beneficial as savings rates are lower than Mortgage rates and for a higher rate tax payer can be even more advantageous.

Clearly offsetting only works if you have available cash which you do not wish to redeem from your loan. It can with some lenders also be allowable for Family Members such as Mum and Dad to open accounts and offset for their children. In such an arrangement Mum & Dad would lose their savings interest but enable the kids to have an interest free loan (If 100% was offset). Not only would this be a great way to help the children, there would also be no risk to the parents savings and it could be accessed as required.

So whether you are self-employed and wish to deposit monies to pay your annual tax bill or have long term savings which you consider separate from you Mortgage plans offsets are still excellent advise for many. It is also worth remembering that any amount offset protects against interest rate rises. Your property may be repossessed if you do not keep up repayments on your mortgage(s).

Our charges are usually £495 and we may also receive a fee from the lender; the precise amount will depend on your circumstances.

Mike Shakespeare
Partner - Chester branch