Discover the joy of offsets

A flexible mortgage that allows you to be prudent or spendthrift from month to month? Christopher Browne finds out more

Heather Scott likes to put her perks before her pensions. She may work for a finance company, but she's happier spending her cash than stashing it. "I've never been much good at saving. As soon as I have some money to spare I splash out on furnishings, luxuries and computer games for my son Blair."

Heather Scott likes to put her perks before her pensions. She may work for a finance company, but she's happier spending her cash than stashing it. "I've never been much good at saving. As soon as I have some money to spare I splash out on furnishings, luxuries and computer games for my son Blair."

Three years ago, she had five endowment policies to help pay off her mortgage and some loans she took out for home improvements at her home in Longniddry, East Lothian. Then along came the endowment crisis. Along with millions of other hapless policy-holders, the value of Scott's endowments dived. So she surrendered them to her lender, Standard Life.

Shortly afterwards, she also changed her job and, while doing some product research at her new workplace, stumbled on a home loan that was "just the business". It's called an offset mortgage and links any savings you may have with your home loan.

It's like a second deposit, really. But unlike the down payment, this does far more work for you. You may not get interest on your savings (and current) accounts, but it remains tax-free throughout your mortgage term and, by plopping neatly into your mortgage, lowers the size of your loan - which means less interest and - with luck - a gratifyingly short borrowing term.

Heather and her husband Brian linked their savings - the sum they raised from the endowments - with their loan on a 50:50 basis when they remortgaged their home with lender Intelligent Finance, Heather's employer. "Because our cash matched the loan, it was completely interest-free, which reduced our monthly payments by £200. As we often overpay our mortgage premiums, we will be able to clear it in less than half of its 22-year term, while I can continue to spend, spend, spend, with the added comfort of knowing we're savers too," she says.

Offsets appear in several guises. Some are fixed, some tracker, others capped and a new one gives a welcome fillip to first-time buyers. Suppose a young couple want to buy a £135,000 terraced house on the Norwich coast, from next week they can apply for Newcastle Building Society's First-Time Buyer Offset. Instead of the buyer, it's a parent or relative who does the saving, adding a sizeable chunk to offset the young pair's loan (fixed at 5.4 per cent) for five years. After that, the mortgage reverts back to the couple, who should by now be in higher-paid jobs and able to handle bigger outgoings.

One relative newcomer to the offset market is Hinckley & Rugby Building Society, which has a 4.84 per cent offset mortgage with a free valuation and no setting-up costs over any term (maximum 25 years), plus payment holidays of up to three months a year. Most offsets have two annual month-long payment holidays, which gives ideal back-up for anyone on maternity leave, changing their job, or coping with redundancy or a spell of illness.

And there is another perk, too. "If you know you are coming into money, you can even get an offset with no cash in your savings or current accounts at all," says Karen Taylor of H&R which like several others, calculates interest daily which means overpayments are applied to your account immediately. Then there's flexibility. You have instant access to your savings, so you can dip in to buy a new car if you want to, while the prudent can stash far larger lumps of cash than they could with an Isa-linked mortgage and its £3,000-a-year limit.

"The individuals most suited to offsets are the self-employed, such as barristers, who are paid large sums at different times of the year. The ideal figure for a saver is around 30 per cent of their offset mortgage. If you put in less, you may find it better to go for a fixed mortgage with a 0.5 to 1 per cent lower interest rate," says Ray Boulger of Charcol mortgage brokers.

Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
tvExecutive says content is not 'without any purpose'
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
PROMOTED VIDEO
Sport
sportLeague Managers' Association had described Malky Mackay texts as 'friendly banter'
News
A polar bear’s diet is rich in seal blubber and half of its own body weight is composed of fat
i100
News
peopleCareer spanned 70 years, including work with Holocaust survivors
News
people
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
News
London is the most expensive city in Europe for cultural activities such as ballet
arts
Arts and Entertainment
Jeremy Clarkson has rejected criticisms of his language, according to BBC director of television Danny Cohen
tv
Extras
indybest
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Application Support - Enterprise Java, SQL, Oracle, SQL Server

    £45000 - £55000 per annum: Harrington Starr: A well-established financial soft...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Junior Quant Analyst - C++, Boost, Data Mining

    £25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

    Day In a Page

    Air strikes? Talk of God? Obama is following the jihadists’ script

    Air strikes? Talk of God? Obama is following the jihadists’ script

    The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
    Ebola outbreak: Billy Graham’s son declares righteous war on the virus

    Billy Graham’s son declares righteous war on Ebola

    A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
    Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

    Not even Jeremy Clarkson is bigger than the BBC, says TV boss

    Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
    Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

    Nick Clegg the movie

    Channel 4 to air Coalition drama showing Lib Dem leader's rise
    Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

    Philip Larkin: What will survive of him?

    Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

    Waxing lyrical

    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
    Texas forensic astronomer finally pinpoints the exact birth of impressionism

    Revealed (to the minute)

    The precise time when impressionism was born
    From slow-roasted to sugar-cured: how to make the most of the British tomato season

    Make the most of British tomatoes

    The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
    10 best men's skincare products

    Face it: 10 best men's skincare products

    Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
    Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

    Mackay, Moody and another grim day for English football

    The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
    La Liga analysis: Will Barcelona's hopes go out of the window?

    Will Barcelona's hopes go out of the window?

    Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape