Black says: “The ability to effectively earn tax-free interest on your savings means that offset mortgages offer a significant advantage to many borrowers and especially to higher rate taxpayers with a reasonable level of savings. Others who may benefit from an offset include the self employed, those for whom bonuses can represent a sizeable proportion of their income, buy-to-let landlords, those paying school fees and for investors. The paltry rates currently available from normal savings accounts give a significant impetus to the attractions of an offset mortgage. If the offset includes a current account facility, so much the better, especially for those who normally remain in credit.
“A borrower needs to be financially disciplined to get the best out of an offset but it is worth being aware that offsets charge a slight premium above the rate charged by non-offsets. Typically lenders charge a premium of 0.1 per cent to 0.3 per cent for an offset compared to the rates that they charge for similar non-offset products. There are currently 325 offset mortgages from a total of 29 lenders so offsets are much more limited than non-offsets in terms of choice and availability.
“Five-year fixed-rate offset mortgages at 85 per cent LTV or higher are thin on the ground as they are only available from Accord Mortgages, Chelsea Building Society and the Yorkshire Building Society. These three lenders are all part of the same group.
“At 85 per cent LTV, the average interest rate charged for a five year fixed rate offset mortgage is 4.61 per cent with a £1,010 fee. Accord Mortgages has weighed in with a 4.79 per cent rate and a £995 fee, but it is bettered by the direct only products of Chelsea’s 4.09 per cent fix with a £1,495 fee; Yorkshire’s 4.29 per cent fix with a £995 fee and the Yorkshire’s 4.39 per cent fix with a £495 fee. Accord also offers a 4.69 per cent rate with a £1,995 fee.
“Those who do not want an offset facility face an average rate of 4.71 per cent with a £722 arrangement fee. The market leaders here are the Chelsea’s 3.99 per cent with a £1,495 fee, or, of those available through intermediaries the Leeds Building Society’s 4.39 per cent with a £999 fee.
“The direct offerings beat those available through intermediaries in this space so the ability for advisers to recommend direct only products through having a fee-based advice model is a significant advantage. It is also the case that offset mortgages require a modicum of additional understanding and education compared to non-offsets and this aspect gives the adviser the chance to add value to their service by explaining the merits of the offset model to those clients who may be able to benefit from them.
“Offset mortgages are becoming more mainstream but it remains a surprise that they are not more regularly utilised.”