Free banking for life with offset mortgages
Wednesday, 14 Mar 2007 10:25
Offset mortgages could provide free current accounts for life
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As the threat of charges for current accounts increases, experts are pointing out that these can easily be avoided with an offset mortgage.
Offset mortgages or current account mortgages link money in bank accounts to mortgage debt, seeing people charged less interest on their home loan.
But if, as is widely predicted (
full story), current account charges become widespread then offset mortgages could have another advantage as well.
"With the likely ending of free full service current accounts, customers will potentially be able to save around £120 or so a year by having a current account [mortgage] or offset mortgage," said David Black, head of banking at market analysts Defaqto.
"They are now increasingly regarded as mainstream products and we believe that providers will start to target new markets such as buy-to-let investors or those with lumpy income streams."
Currently 36 organisations provide offset mortgages or current account mortgages - offering 198 products between them.
This sort of mortgage can take time to understand, but Defaqto believes customers will increasingly switch to them if current account charges increase.
Consumer benefits of current account mortgages and offset mortgages
Ability to make overpayments
Ability to take payment holidays or underpay
Credit balances will generally earn interest at the same underlying rate as the mortgage
Tax efficiency – particularly for higher rate tax payers
Easy access to savings balances
These are longer term vehicles so potentially remove the cost and hassle of remortgaging