Who should consider an offset mortgage?

Higher-rate tax payers may also want to consider offset mortgages as their savings will attract no interest and they will not have to declare this as taxable income. 

Self-employed applicants can use money set aside to pay their tax bill to offset and landlords can have their rental income paid into a savings account linked to their own residential offset, which can help reduce their own mortgage interest that is also very useful. 

Christine Newell, mortgages technical director at Paradigm Mortgage Services, says it is worth noting that some lenders allow business accounts to be linked to offset mortgages.

However, generally Ms Newell says the name on the business account would need to match the name on the mortgage so it normally would be sole traders or partnerships that could do this. 

Some lenders can also allow other family members to link their saving accounts to a mortgage of a relative. 

This could also be good for self-employed applicants who want to take a payment holiday to pay a tax bill but again do not have the benefit of a lump sum to offset. Christine Newell

Ms Newell says this can be useful where parents want to help out children with paying a mortgage debt but not actually gift them over the whole amount.

Savings pot

The key part of having an offset though, is there is no point recommending this mortgage deal to those with very little cash in the bank as to take maximum benefits from an offset you need to have some savings.

As purchasing a property generally uses up most people’s resources these particular types of mortgages currently tend to be the choice of only the more affluent of an adviser’s clients.  

Ms Newell says: “It is not a product for the masses.”

However this is not to say that offset mortgages will not have broader appeal this year.

With returns on cash savings at rock bottom, offset should appeal to a broader range of borrower than ever before, says David Hollingworth, associate director of communications at L&C Mortgages.  

Although customers will still need to use the offset functionality to make up the slightly higher rate, the margin between standard and offset is often very little this year, Mr Hollingworth says.  

He says that will also make it a better option for a broader range of borrower.

They can be a good option for someone who has some savings to offset against the mortgage cost, but who may need the flexibility to draw on those savings for another purpose.Bernard Clarke

Nonetheless Mr Hollingworth says offset mortgage deals are particularly likely to suit those that perhaps receive large bonuses that they will need to draw on eventually but want to put to good use in the meantime.  

Flexible option

Bernard Clarke, communications manager of the Council of Mortgage Lenders, says the flexibility offered by offset mortgages is also what appeals to a range of individuals.

This flexibility can work well for borrowers who would otherwise keep some savings in what is likely to be a low-yielding deposit account.  

If they need to draw on their savings, they are usually able to do so easily, with little or no notice – though obviously at the cost of an increase in their mortgage payment at the end of the month.  

Mr Clarke says: “So, they can be a good option for someone who has some savings to offset against the mortgage cost, but who may need the flexibility to draw on those savings for another purpose.” 

emma.hughes@ft.com