In this article, we will review offset mortgages, who they are most suitable for, the benefits of offset and the most important features to look for.
As of the 21/5/2015, the majority of high street lenders Halifax, Nationwide, HSBC, Skipton, Lloyds and TSB do not offer offset. As a result of this, offsets are an underrated and under-utilised product. Coventry, Woolwich and Clydesdale Bank are the established lenders offering offset.
Historically, clients liked the idea of an offset but were unwilling to pay the interest rate premium to have the benefits. Currently, the Coventry Building Society is only charging a 0.10% premium on their term variable rate to obtain offset*. Interest rates are very fluid so contact us for current best buys.
Offset mortgage v Flexible mortgage
The major benefit of an offset mortgage compared to a flexible mortgage is that once the borrowing has been underwritten the lender will not request any further evidence of income. On the older style flexible mortgage where the overpayments were made reducing the mortgage balance, the lender has the right to request up to date proof of income to confirm affordability on any funds requested back from overpayments.
Offset mortgages are available to clients on a purchase or remortgage basis but they are more suited if you match at least one or more of the following criteria.
- Higher rate taxpayer
- Savings in excess of 5% of the mortgage
- Ability to make regular overpayments
- Buy to Let Landlords
- Buying properties at auction
Some of the benefits of offset mortgages
- Pay mortgage off quicker by having savings linked to borrowing compared to having standalone savings.
- Simplicity -you can all your savings in one account. No need to swap accounts to get the best rate.
- Instant access.
- Higher rate taxpayers lessen tax liability compared to standalone savings.
- Buy to Let landlords can pay their residential mortgage off quicker by having rental income paid into offset account.
Important offset features – not all lenders include all offset features.
- The ability to switch from reducing the mortgage term to reducing the mortgage monthly payment.
- The ability to transfer funds electronically from your existing current account to the linked offset savings account or vice versa.
- Ability to receive direct debit payments in and make direct debit payments out.
- Access funds via debit card.
- Limited restriction on use of funds
- Switch to fix option
- Offset available on a fixed, variable or tracker rate.
- * Coventry product range launched on the 21/05/2015.
Our recommendation is to avoid 2-year preferential rates as once you have organised your linked offset account you will have to remortgage to remain at a competitive rate. We feel that a preferential variable rate for the mortgage term or longer fixed rates offer better value.
Why Use Neil Soundy Financial Services For Your Mortgage Advice?
- We are experts in SPV / Ltd Co lending.
- Your initial consultation is free with no obligation
How Much Will It Cost Me For Your Advice?
A fee of £495 is payable on completion of the mortgage and Neil Soundy Financial Services Ltd will keep the commission received from the lender for arranging the mortgage.
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Services Authority.
We do not give or imply legal or taxation advice. We recommend you contact a solicitor or accountant for advice in these areas.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.