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; request a free guide on NISAs from Hargreaves Lansdown

Voices
A Russian hunter at the Medved bear-hunting lodge in Siberia
Save the tigerWildlife charities turn to those who kill animals to help save them
News
Davis says: 'My career has been about filling a niche - there were fewer short actors and fewer roles – but now I'm being offered all kinds of things'
PeopleWarwick Davis on Ricky Gervais, Harry Potter and his perfect role
News
i100
Sport
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
PROMOTED VIDEO
Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Arts and Entertainment
A scene from Aladdin is performed at the Tony Awards in New York in June
theatreBrit producer Lythgoe makes kids' musical comedy a Los Angeles hit
Sport
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
sport
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Life and Style
A small bag of the drug Ecstasy
Health
Life and Style
Floral-print swim shorts, £26, by Topman, topman.com; sunglasses, £215, by Paul Smith, mpaulsmith.co.uk
FashionBag yourself the perfect pair
News
news
News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmReview: A week late, Secret Cinema arrives as interactive screening goes Back to the Future
Extras
indybest
News
i100
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

    Financial Analyst - Forecasting - Yorkshire

    £300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

    Business Architect - Bristol - £500 per day

    £500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

    Regulatory Reporting-MI-Bank-Cardiff-£300/day

    £200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Day In a Page

    Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

    Hunters protect Russia's rare Amur tiger

    In an unusual move, wildlife charities have enlisted those who kill animals to help save them. Oliver Poole travels to Siberia to investigate
    Transfers: How has your club fared in summer sales?

    How has your club fared in summer sales?

    Who have bagged the bargain buys and who have landed the giant turkeys
    Warwick Davis: The British actor on Ricky Gervais, how the Harry Potter set became his office, and why he'd like to play a spy

    'I'm a realist; I know how hard this business is'

    Warwick Davis on Ricky Gervais, Harry Potter and his perfect role
    The best swim shorts for men: Bag yourself the perfect pair and make a splash this summer

    The best swim shorts for men

    Bag yourself the perfect pair and make a splash this summer
    Has Ukip’s Glastonbury branch really been possessed by the devil?

    Has Ukip’s Glastonbury branch really been possessed by the devil?

    Meet the couple blamed for bringing Lucifer into local politics
    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In grandfather's footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

    Martha Stewart has flying robot

    The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

    The dining car makes a comeback

    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
    Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

    Gallery rage

    How are institutions tackling the discomfort of overcrowding this summer?
    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

    Eye on the prize

    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
    Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

    Women's rugby

    Tamara Taylor adds fuel to the ire in quest to land World Cup