When savings trample over the home loan

Melanie Bien reports on the rise and rise of the deals that will slash your interest payments if you've got enough cash put by

Offset mortgages haven't just got their foot in the door, they've kicked it wide open. One in 10 of all home loans are now offset against savings and/or current accounts - even though the first one was launched just five years ago.

Lloyds TSB and Cheltenham & Gloucester entered the fray last week. By combining Lloyds TSB's current and savings accounts with a home loan from C&G, its mortgage arm, customers will be able to play off their savings against their debts, reducing the interest on their mortgage.

"Often you think of the money in your current account as being 'dead' pending that month's bills," says David Gagie, managing director of consumer lending and current accounts at Lloyds TSB. "The great thing about offsetting is that you use the time between being paid and your monthly bills going out to reduce the amount that you're charged on your mortgage."

Offset deals let you link any number of savings accounts - and sometimes your current account - to your mortgage. If your outstanding loan is £200,000, for example, and you have £35,000 in savings, you only pay interest on £165,000. But you can access your savings at any time.

Your monthly mortgage payments remain the same as they would be if you didn't have an offset product. But you end up clearing your loan several years early as you overpay each month.

Borrowers who take out the Lloyds TSB/C&G offset deal are being offered a lifetime tracker at 0.9 per cent above the Bank of England base rate, giving a current payable rate of 5.15 per cent. This compares with First Direct's standard variable rate (SVR) of 5 per cent and the Woolwich's 5.1 per cent.

The Lloyds TSB/C&G deal could be more innovative, says David Hollingworth at broker London & Country. "It doesn't do anything that is not already offered by other lenders, and the rate's not that enticing: Universal building society offers 0.5 per cent above the base rate for life on its offset mortgage," giving a payable rate of 4.75 per cent.

Customers who want a choice of deals will also be better off with First Direct, which offers a fixed and discounted offset mortgage as well as a variable rate. There is a two-year fix at 5.49 per cent, or a discount of 1.01 per cent off the SVR for three months - giving a current payable rate of 3.99 per cent.

The problem with offset deals is that you need to have a decent sum put by. "You pay more on the rate than you would with a more conventional product, so you need to look closely at whether you've got enough savings to make it work in your favour," warns Mr Hollingworth. "Someone with an average mortgage and little in the way of savings won't really benefit."

Newcastle building society offers a standard two-year discount at 4.05 per cent, he says, a "good, clean, cheap rate".

"This is a difference of more than 1 per cent [on the Lloyds TSB/C&G offset], and to make that up you need a fair old chunk in savings - 15 to 20 per cent of your mortgage debt. Most people won't have that," he adds.

If you are interested in an offset deal, shop around for the best rate. See if you can put your current account into the mix as well as your savings, and also if you can offset the savings of family and friends - this will reduce the interest on your mortgage further still. Newcastle building society, the Woolwich and Lloyds TSB/C&G will let you do this.

The advantage of family offsetting is that your parents can help you buy a property without losing control of their money - they can access it at any time. But make sure they realise they won't receive interest on their savings while the money is offset against your mortgage.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
News
news
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
music
News
i100
Arts and Entertainment
tvPoldark, TV review
News
(David Sandison)
newsHow living on a houseboat meant I didn't officially 'exist'
Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor