The Woolwich has brought out the open plan offset together flexible mortgage.
The mortgage is aimed at borrowers who have relatives with an existing flexible mortgage with The Woolwich and who want to use the savings account facility to help out their relatives. It has an interest rate set at 0.75 per cent above the Bank of England base rate for the life of the loan.
Up to twelve savings accounts can be linked to the mortgage, with the amount of interest payable varying depending on how much money is added to or removed from the savings accounts. Open plan offset together will operate by linking these savings accounts kept by the relatives to the mortgage, so that the savings account is offset against the mortgage loan. For example if the borrowers mortgage is for £70,000 and the relatives savings account contains £10,000, interest is only paid on £60,000. The interest rate charged on the savings account varies from 5.25 to 6.25 per cent, depending on the amount of money in the account.
The mortgage is also fully flexible, allowing underpayments, overpayments, payment holidays, lump sum withdrawals and daily interest.
The idea of offsetting savings against a mortgage in order to reduce interest payments is not new and is already available from The Woolwich, as well as Intelligent Finance and Northern Rock. However these mortgages operate by offsetting the borrowers savings. This is the first product to allow the ability to offset the savings accounts of parents and other members of the family against a mortgage.
Tying the entire product to the Woolwich can restrict the borrowers to the rates charged by the company. As a result the borrower and their relatives could save more money by getting out a mortgage with a rival company that offers a better rate. Also if the parent removes money from the savings account part of the mortgage without warning, the child could see a sharp increase in the amount of interest that they have to pay.