It feels like we have been talking about offset mortgages for most of my lifetime. Certainly over the past 10-15 years they have been a core part of the mortgage market, albeit one that remains firmly in the niche category.
Every so often, there does appear to be a groundswell of market chatter about whether offsets will eventually break out of their shackles and make it truly into the mainstream, but – for a variety of reasons – this has yet to materialise.
Interesting, given the readership of this publication, anecdotal evidence suggests that advice – and take-up – of offset mortgages has been much more prevalent among IFAs and their clients than in other sectors. Advisers tend to see the innovation within the product and are much more likely therefore to recommend the offset option particularly to high-net-worth clients who may have sufficient surplus cash to gain far more benefit from it.
After all, if you have considerable sums of money currently doing little and earning little interest within a cash savings or current account, then using that money via an offset to reduce the amount of interest charged on your mortgage would seem to make financial sense. Plus, by doing this you can potentially pay off the mortgage balance sooner than via a simple, straight mortgage product.
In a low interest rate environment, as we have experienced for nearly the past decade, one can understand why an offset mortgage might seem much more attractive to those with savings. Let us not forget that we do not have to be talking about hundreds of thousands of pounds here; there is a benefit to be gained with much lower sums, that is if the client is willing to set this within the offset product and not aim to earn interest on it.
Looking ahead, even with inflation levels rising, governor of the Bank of England Mark Carney recently said that the Monetary Policy Committee would be willing to stomach rising inflation without any recourse to increasing bank base rate for longer than the committee would have done historically. To my mind, that appears to be setting out a low interest rate environment for some time to come. Most economists and commentators appear to believe that BBR, in particular, might only be raised slightly, if at all, throughout 2017 and 2018. This being the case, it does raise the attraction of offsets for those who, quite frankly, are looking at small-fry cash savings rates.
With offset mortgages it is also now the case that there are far more lenders, offering far more products, than we might have seen before. As an adviser, if you have not looked at the offset options in the market for several years, you might be surprised to see the growth in numbers, with many more lenders considering offset-type options as a niche area because competing on price for standard residential mortgages is not achievable.
Those lenders who led the way initially with their offset product propositions are still very active in the market – including Scottish Widows, Barclays, Coventry Building Society and Accord. However, I would draw attention to a number of, shall we say, smaller building societies that now also offer offset solutions. Indeed, many of them are leading the way in terms of pricing and criteria. Ones I would point out are Beverley Building Society, Hinckley & Rugby Building Society, The Family Building Society, Vernon Building Society, and Melton Mowbray Building Society. Indeed, the Beverley appears to be competing hard on price at present with its two-year discounted variable rate offset product currently coming in at 1.58 per cent.