Offset mortgages: The lowdown

Thursday, 31 January 2008 12:00

Homeowners could save as much as £70,000 by opting for an offset mortgage to repay their home loan, new research has revealed.

Although once considered a niche product, offset mortgages - where balances in current and savings accounts are balanced against a mortgage debt - are rising in popularity and represent around eight per cent of the market.

However, supporters of the product think more UK mortgage holders should take advantage and if they did, could save thousands.

The Council of Mortgage Lenders (CML) figures show 170,000 offset mortgages worth £23.9 million were taken out in 2006.

Michael Coogan, director general of CML, said: "These figures are encouraging because they suggest that consumers are becoming more financially astute - better able to see beyond headline rates and focus their attention on getting long-term value from their savings."

Intelligent Finance, a banking services firm, has calculated if offset mortgages were as popular in the UK as in Australia borrowers could save a combined £345 billion. The average Brit alone, it estimates, could save £70,000.

Down under, it is estimated around 50 per cent of mortgages taken out have some kind of offsetting element built it.

Cammy Amaira, director of sales at Intelligent Finance, said: "In Australia, the popularity of offset has a lot to do with mindset.

"Australians value home ownership as much as we do, but they don't want their mortgage to take over their lives, making offset their ideal choice."

Intelligence Finance illustrated the savings using the example of a customer who is remortgaging with a 25-year remortgage offset tracker and who borrows £99,090 on a repayment basis against a property worth £220,195. They have £18,566 in savings, a salary of £1,487 after tax.

If they regularly put away £91 into savings at the end of each month they could shave seven years and six months off their mortgage term an save £69,758 in interest.

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