Offset Mortgages UK | Consumers Get Flexible Finances

With offset mortgages UK consumers are enjoying a growing market, with some research estimating that 10 per cent of mortgage advances in the country are offset mortgage deals. In 1997, with the appearance of the first offset mortgages UK consumers saw Virgin and the Royal Bank of Scotland join forces to launch the Virgin One account*. This was a flexible offset mortgage account that had many of the features that characterise offset mortgages in the UK today.

With offset mortgages UK account holders can set their savings against their mortgage to reduce the amount of interest they pay. For example, someone with £20,000 worth of savings and a mortgage of £120,000 would pay interest only on the remaining debt of £100,000. Many mortgage offset accounts also allow cardholders to use current account credit balances in the same way and to roll credit card debt into the same financial management system.

The difference between offset mortgages in the UK and current account mortgages is that with offset mortgages UK consumers link their finances but keep them in different pots. In contrast, a current account mortgage keeps all your finances (loans, savings, credit cards, mortgage and current account) in a single pot. This means that offset mortgages are tax efficient because no interest is paid on savings, so therefore no tax is payable. This means that with offset mortgages UK consumers have a financial advantage over current account mortgages.

Mortgage Offset Interest Rates

With offset mortgages UK consumers now benefit from competitive interest rates, with many of these pegged to the Bank of England base rate through tracker offset mortgages. Fixed rate offset mortgage deals are also available. This means that with offset mortgages UK consumers can have the same low mortgage rate for outstanding credit card balances.

Offset mortgage deals work well for people who have saved a lot of money. For example, it is estimated that people with £20,000 worth of savings who take an offset mortgage deal will repay their 25 year mortgage eight years early and will save a small fortune in interest payments. However, some research suggests that people with savings might prefer to use their savings and have a smaller mortgage**.

Offset mortgages in the UK are part of a range of flexible mortgage deals, so called because there are no penalties for some transactions that might incur fees in a traditional mortgage. This means that with offset mortgages UK consumers can overpay or underpay depending on their financial circumstances. And since every account has a borrowing limit or facility, it is easy to cater for large expenses by withdrawing money when it is needed. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

There's no denying that with offset mortgages UK consumers have some significant advantages, particularly if they on a variable income. Some examples are people who are self-employed, who might get lump sums one month then nothing for a while, and sales people who earn commission. People who get dividends or annual bonuses (such as City employees, who might have an annual salary of £50,000 but get double that amount as a bonus) might also find mortgage offset deals useful. With offset mortgages UK consumers now have a number of flexible options for affordable home ownership.

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© 2007 - 2010 Offset Mortgage Centre | Terms and Conditions | Privacy Statement | Your home may be repossessed if you do not keep up repayments on your mortgage. *Source: Mortgage Stratege April 2007. **Source Barclays Bank: Calculation based on an offset tracker product; repayment mortgage of £100,000 over a 25-year term that has been offset with £20,000 savings, resulting in a reduction in mortgage term of 8 years and 8 months or a saving of £44,867 in overall interest. Calculation assumes balance remains constant throughout the life of the mortgage and that the mortgage loan and savings balance will vary. Outcomes will be either a reduction in payments or a reduction in mortgage term. No interest is paid on balances offset against the mortgage.