Money Insider: Too many missing out on offset mortgage benefits
Saturday 16 April 2011
consumers are continually looking at ways to save or make money via financial services products. Whether it's getting an extra 0.2 per cent interest on their ISA, making a £50 annual saving on their car insurance or maybe changing their energy provider every 12 months, there's plenty of switching and saving going on.
It's great that people are prepared to take a little time and effort to get a better deal from their bank or insurance company, as it keeps the providers on their toes. However, there's one area where people have the potential to save an awful lot more money for far less effort, but many still don't consider it, and that's by taking out an offset mortgage.
With an offset mortgage, we're not talking about saving the odd £20 or £30 here and there, it's a real opportunity to save thousands of pounds, just by being smarter with your money.
With savings rates still barely above their record low point, offsetting your nest egg against your mortgage is a no-brainer. For starters, you don't have any tax to pay on your savings, and secondly the rate of interest you get is effectively the same as your mortgage rate, plus you always retain full access to your savings if you need it.
A recent survey by Yorkshire Building Society, one of the main players in the offset market, revealed that only 7 per cent of borrowers considered an offset product when taking out their mortgage.
There are a number of reasons why this figure is so low. Many of the banks and building societies in the UK don't offer the offset facility, and therefore some customers are never told about the potential benefits of the offset product.
Another reason for the poor take-up is that consumers think that an offset mortgage is a complex product and only suitable for those with a sizeable savings balance. Both of these assumptions are incorrect.
To give you a taste of the savings you can achieve with an offset mortgage and to prove that it is still viable for those with a fairly modest savings balance or those who intend to save on a regular basis, I'm sure the following numbers will raise a few eyebrows.
For someone with savings of £2,500, offsetting it against a £100,000 mortgage would save you interest costs of £4,142 and take seven months off the term of your 25-year mortgage.
If you are able to save £150 per month into your savings account, then you'll save £20,518 in mortgage interest, cut three years and two months off the term of your mortgage and end up with a savings balance of £39,300 when the mortgage is repaid – convinced now?
If you were looking for an offset mortgage four or five years ago, it was quite common to pay an extra 1 per cent on the mortgage interest rate. However recent Moneynet research shows that the average premium on the rate is now just 0.36 per cent, with some lenders, including Yorkshire Building Society and Britannia, charging just 0.1 per cent more than for a standard mortgage.
With the ability to make such radical savings, it's disappointing that more people aren't taking advantage of this tax-efficient way of saving money, and yet another reason why personal finance education should be mandatory in all schools.
At least it would ensure that people understand how to make real cost savings, rather than toiling away to save the odd few pounds extra here and there by frequently switching savings accounts, credit cards or shopping round for the best current account.
The short-term fixed savings market is currently a hotbed of activity, and whereas just six months ago it was virtually impossible to get a rate of 3% on a one-year bond, there are 10 accounts offering a rate of 3.25% or more. This week Sainsbury's Finance launched a new 12-month bond offering a very competitive 3.35% AER on balances of £5,000 or more, although the top rates in this field are currently courtesy of FirstSave at 3.50% AER, followed closely by AA Savings and Tesco Bank, both at 3.40% AER.
Clydesdale Bank and Yorkshire Bank have just launched a new Regular Home Saver account to encourage first-time buyers to build a deposit. Those who save a 5% deposit and take out a mortgage with Clydesdale/Yorkshire will receive a £500 bonus, and for those managing to accumulate a 10% stake the bonus reward is £1,000. The first-time buyer market is still slow and so any new initiatives that encourage people to consider buying a home rather than renting will be welcomed by the industry and also benefit the wider economy.
Andrew Hagger is a money analyst at Moneynet.co.uk
Will your credit card rewards be scrapped following new EU rules on charges?
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
Simon Read: 'Seven Families campaign offers an escape from financial and emotional distress'
General Election 2015: How you vote next week could affect your finances
Motorists will need a code to hire a car abroad
- 2 How the language you speak changes your view of the world
- 3 Russell Brand backs Ed Miliband: 'You gotta vote Labour'
- 4 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park