The rates on standard mortgage deals compared with their offset cousins are now much closer. For example, Accord now offers offset options at only 0.20 per cent higher than standard products, and with Coventry it may only be a matter of a few hundred pounds on the arrangement fee. This narrower price margin makes offset an option that should be considered by a broader range of customer.
This product design improvement was largely down to greater competition, with most lenders seeking to develop some kind of offset deal. That saw differences in functionality, and many did not come with all the bells and whistles, offering only a savings account alongside the mortgage rather than full-blooded current account banking.
Other innovations came with the idea that offset accounts could be a useful way for the Bank of Mum and Dad to help their children without having to simply hand over their lump sum as a gift. Family offset is perhaps something of a niche offering, but gives a glimpse of how lenders could use offset to develop a broader product for other family members, as well as the borrower.
That has more recently been shown in the development of products by lenders such as the Family BS. This allows for the parental cash to act as security for the mortgage, enabling the child to borrow at a higher loan to value but with a lower rate and interest bill. This approach to the problems that have hit borrowers since the credit crisis shows the scope for offset to continue to provide innovative solutions.
But how has offset fared through the credit crisis?
With major tightening in criteria and a limited appetite for risk it was unlikely that the offset market would escape unscathed. Perhaps the most obvious symptom of that is the demise of Intelligent Finance, the brand developed by HBOS to champion offset. As one of the original offset lenders, its withdrawal from new lending was certainly a blow, particularly as it offered full-blown, integrated banking.
Other lenders reviewed flexible elements, such as the ability to drawback on overpayments or further borrowing facilities in the light of falling house prices. That led to some borrowers potentially denied the opportunity to pull back on overpayments, leading them to doubt the flexibility of their mortgage.
Ironically, the downgrading of those flexible features serves only to highlight the unique benefits of offsetting over flexible. As it got harder to withdraw equity, borrowers became hesitant about overpaying their mortgage for fear of losing access to their cash at a later date.