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Offset Mortgages - October 2014



    But borrowers do not hear so much about them any more. The reason may be because they were not marketed as successfully as they could have been, and perhaps, like the debacle over Alternative Voting, the message did not get through.

    Offset mortgages allow anyone with a large amount of savings to set this cash against their mortgage and pay interest on the balance.

    So with a mortgage of £100,000 and savings of £20,000, the borrower could set the £20,000 against the £100,000 and only pay interest on £80,000.

    This sounds ideal, except that you tend to pay for that benefit, and so it only really works if you have a lot of savings.

    The other issue with it is that every month when the borrower gets his or her statement, it shows up an £80,000 “overdraft”, which could make even the most prudent individual tremble.

    Offset mortgages are best designed for those who might get bonuses and have large amounts of cash coming their way, or who are self-employed and have irregular income, so would benefit from being able to pay towards their mortgage when the money came in.

    It is also worth thinking about using offset in a low-interest-rate environment, because the money works harder than if it was in a savings account.

    Not much attention has been paid to offset mortgages of late, but there is plenty of scope for clients who want to pay less interest on their mortgage, as long as they can stand the scary statement each month.

    Melanie Tringham is features editor of Financial Adviser

    In this special report


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. According to Gordon Bowden, next summer will see offset mortgages around for how long?

    2. According to Gordon Bowden, how many providers are there?

    3. Which of the two core interest savings uses are most commonly offered, according to Keith Barber?

    4. According to David Hollingworth where were the initial launches from?

    5. According to Keith Barber, to which category of worker are offset mortgages “ideally suited”?

    6. According to Andrew Montlake, what is the ratio of savings to loan needed to make offset worthwhile?

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