Money Insider: Rock-bottom savings rates make offset mortgages even more attractive


According to industry research, fewer than 10 per cent of people are currently offsetting their savings against  their mortgage.

An offset mortgage is a proven and tax-efficient way to cut your mortgage costs, and it’s surprising that more people aren’t taking advantage, particularly now that interest rates on savings accounts are at rock bottom. For a start, there’s no tax to pay on your savings interest and the rate you receive is the same as your mortgage rate.

With interest rates on instant access and one-year savings accounts struggling to hit 2 per cent, for many people there’s far more to be gained by offsetting their nest egg against their mortgage balance, which in many cases is being charged at nearer 4 per cent.

Another key benefit is that offsetting gives you flexibility. You always retain access to your entire savings balance in case you need to dip into it at a later date. A major reason for the poor take-up is that consumers assume it’s a complex product and only suitable for those with large savings balances, but both of these assumptions are wide of the mark.

Unfortunately, not all banks and building societies offer the offset facility, so some customers are missing out because they aren’t given the chance to take advantage of this product. With Barclays and First Direct, Yorkshire Building Society is one of the main players in the offset market and, unlike some rivals, it allows offset to be used on its entire range of standard mortgage products with just a 0.2 per cent loading on the rate.

Offset is available across a wide range of loan to values (LTV) with some of the top deals being First Direct three-year fixed at 2.99 per cent and £499 fee to 65 per cent LTV, Yorkshire Building Society three-year fixed at 3.04 per cent and £495 fee to 75 per cent LTV and Barclays Lifetime Offset Tracker at 3.69 per cent and £1,499 fee up to 70 per cent LTV.

To give you a taste of the savings you can achieve with an offset and to prove it is a viable option for those with fairly modest savings or who intend to save on a regular basis, the following numbers highlight the positive impact this strategy can have on your finances.

For someone with savings of £5,000, offsetting this balance against a £100,000 mortgage at 4 per cent would save interest charges of £8,016 and takes one year and three months off the term of a 25-year mortgage.

You don’t have to have a huge lump sum to benefit from offsetting, regular savings will work too.  For example, if you are able to put aside £150 per month into your savings account each month, then you’ll save £20,518 in mortgage interest charges, cut three years and two months off the length of your 25-year mortgage, plus you’ll end up with a savings balance of £39,300 when the mortgage is repaid.

In the past, people have opted for a standard mortgage without a second thought but, with a growing number of more competitive, offset options to choose from and savings accounts offering poor returns, it’s time more borrowers started to take advantage of these considerable financial benefits.

Consumers want brands to keep things simple

With money tight, shopping around to find the best deal has almost become a national pastime thanks to the vast range of information at our fingertips 24/7 through our PCs, laptops, tablets and smartphones.

A recent report from consumer trends agency Canvas8 revealed that 48 per cent of people spend hours shopping around because they fear missing out on a good deal.

Seeking out the best deal is almost second nature in sectors such as personal finance, telecoms and utilities. However the report claims that shoppers want brands to make their life easier by offering simple, flexible and transparent deals.

In the energy sector, for example, which has been criticised for the number and complexity of tariffs on offer, EDF Energy Blue Plus Price Promise tariff monitors the market for customers, informing them if another supplier is more than £1 a week cheaper at typical use.

The tariff, which fixes energy prices at a highly competitive price, also allows customers to leave for free at any point.

There’s definitely something in this strategy with more than 1.2m energy accounts having switched to this tariff since it was launched last April. Perhaps it’s time a few more big brands adopted  a similar approach instead of tying us in knots with complex and prohibitive terms and conditions.

Andrew Hagger is an independent personal finance analyst from

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Oscar Pistorius is led out of court in Pretoria. Pistorius received a five-year prison sentence for culpable homicide by judge Thokozile Masipais for the killing of his girlfriend Reeva Steenkamp
voicesThokozile Masipa simply had no choice but to jail the athlete
Arts and Entertainment
Sister Cristina Scuccia sings 'Like a Virgin' in Venice

Like Madonna, Sister Cristina Scuccia's video is also set in Venice

Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004

Singer says the track was 'force-fed down people's throats'

Life and Style
The Tinder app has around 10 million users worldwide

techThe original free dating app will remain the same, developers say

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Helpdesk Analyst

    £23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

    Senior Helpdesk Analyst / Service Desk Co-ordinator

    £27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album