Offset Banking

Offset Banking For Small Business | Are You Clued Up?

Red TapeOffset banking is the buzzword in financial services at the moment and many UK consumers have turned on to the benefits of offsetting. What many may not know, though, is that some people may also be able to use business offset banking to save even more on their mortgages.

Business offset accounts are offered by a number of offset mortgage providers, including the Royal Bank of Scotland, Nat West and Yorkshire Building Society. The rules state that business offset banking is available to sole traders - that's self employed people running their own business - or simple partnerships. A simple partnership is two people (often, but not always, a husband and wife) who run a business together.

The beauty of business offset banking is that borrowers can use their business current or savings accounts to offset their personal mortgage. This is a real boon for small business and home business owners who may be struggling to make ends meet. With sole traders, the business accounts used for offset banking must be in the trader's name alone, although the offset mortgage can be jointly held. Partnerships consisting of more than two people, known as complex partnerships, are not normally eligible for this type of business offset deal.

Business offset accounts work like other offset banking. Borrowers forego the interest on their business accounts in favour of reducing the interest paid on their personal mortgage. Unlike current account mortgages, where borrowers merge all of their credit cards, loans and savings into one account with a large borrowing limit, business offset banking allows borrowers to keep their business and personal accounts separate, while still getting the benefit of offsetting.

The Appeal Of Business Offset Banking

The main appeal of business offset banking comes from its flexibility. Effectively, it's a mortgage that borrowers can control. Like other offset The Right Mortgage For You Imagemortgage accounts, business offset account providers generally allow overpayment, underpayment, lump sum payment, payment holidays and early repayment. This flexibility is especially useful for self-employed people and other people with fluctuating income. It's worth checking for the particular deal offered with your offset banking facility. For example, some business offset mortgage providers only allow underpayment and payment holidays after a series of overpayments. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

Interest on business offset accounts is charged daily, which means that you immediately get the benefit of applying a credit to your account. However, mortgage payments are made as usual. This means that most people with business offset banking facilities regularly overpay on their mortgages. In fact, this is so common that many people with offset banking accounts repay their mortgages early, some by as much as eight years*. That's a lot of interest saved.

Financial analysts say that offset banking works best for people who already have savings worth 10 to 20 per cent of the offset mortgage amount. This may well apply to many people with business bank accounts. Business offset banking is a good way for sole traders and people in limited partnership to get the best of both worlds. They can continue to run their business, save interest on their mortgage and have the flexibility to cope with changing financial and business circumstances.

However, please note that The Offset Mortgage Centre cannot advise on or arrange mortgages from Nat West or the Yorkshire Building Society.

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