Offset mortgages could save borrowers thousands, says First Direct
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Mortgage borrowers could save themselves thousands of pounds by taking out an offset product rather than a savings account, First Direct claims.
The lender says that over the past two years UK offset mortgage borrowers have earned £1.4bn more on their savings than those who put their money in best buy savings accounts.
Based on First Direct’s customer data, the estimated 460,000 offset mortgage borrowers in the UK have made a total ‘return’ of £1.9bn over the last two years, compared with £534m in cumulative net interest if they had alternatively invested in the equivalent best buy saving accounts.
The bank says the average offset savings balance has risen by 19% (from £27,822 in Q2 2009 to £33,243 in Q2 2011) compared to a 2.5% rise in the average gross loan balance in the same period (from £127,058 to £130,186).
This means the average offset saving balance is now 26% of the mortgage balance compared with 22% in Q2 2009.
The lender claims that over the last two years a higher rate tax payer would have generated £2,960 more in savings with a First Direct offset than if they had continually moved their money between best buy savings accounts.
Richard Tolchard, senior mortgage product manager at First Direct, says: “An offset mortgage is an excellent option for those borrowers looking to benefit from a higher rate for their savings.”
He says that while many savers are seeing the value of their funds eroded by inflation and being taxed, no tax applies if they use the money to reduce the interest on their mortgage with an offset deal.
Tolchard adds: “In the current interest rate environment mortgage borrowers could have saved thousands more with an offset in the last couple of years, even if they had diligently been seeking out the best buy savings rates.”
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Readers' comments (7)
Chris Gardner | 9 Jul 2011 3:11 pm
They would say that, wouldnt they.
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john | 11 Jul 2011 2:23 pm
Let me have a guess, have they perchance introduced a new offset product?
Also read a bit in the paper about them saying the undecided should have a capped, and they have just launched a cap. Call me cynical butis this not like the guy in the panorama poor bank advice programme, offering a discount in investment charges "for this week only"????
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A Has Been | 11 Jul 2011 2:45 pm
I had a First Direct offsett mortgage and saved £000s. Not just by my savings..but not keep switching mortgages......oh...but they don't pay intermediaries do they? Silly me, can't use them then!!!
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Luke Atkinson | 12 Jul 2011 10:30 am
''A Has Been'' is right, most brokers wouldn't recommend a First Direct product because they don't get paid for it, however there are some out there who are true whole of market.
Some brokers I worked with in the past would struggle to understand or be able to explain what an offset is.
They do save £000's and at a time when savers are struggling to find attractive savings rates, and borrowing rates are also low, what better time is there to use an Offset??
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Grey Haired Underwriter | 12 Jul 2011 2:51 pm
I just wonder how many people use offset to its full advantage - or do they just end up with the same debt at the end of the mortgage term? Interest only by another name perhaps?
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A Has Been | 12 Jul 2011 9:23 pm
You are correct GHU...however if advised correctly by a good adviser, they should be ok. Luke is also correct, there are good advisers out there...but sadly they are in the minority...I hope they are the ones that prosper in this awful climate
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Anonymous | 13 Jul 2011 3:13 pm
another Advertorial by First Direct!
We have been recommending offset mortgages for years - clients love them but they are only for the select, disciplined few and its a lot harder to get them now as LTV's are much lower.
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