David Bitner, head of product operations, The MarketPlace at Bradford & Bingley. While offset mortgage are marketed as the answer to many borrowers' financial needs, they are in fact likely to leave many borrowers worse off. Borrowers managing their money effectively are likely to be better off opting for a market-leading traditional mortgage and a high interest savings account.
The offset market has proliferated over the past year with many lenders now offering this type of product. However the majority of the deals currently available are at uncompetitive rates compared with traditional deals. If borrowers do their homework they will find that offsetting makes little sense for most of them. With only 3% of savers having over £30,000 in savings, it is clear that most borrowers should avoid uncompetitive offsets.
Lenders are promoting these products and stating that borrowers will be financially better off by using them. In most cases, this is not true. Though they do provide flexibility and some products even allow borrowers to include current accounts, credit cards and loans, the mortgage could end up costing more in the longer term. Many people mistakenly think that they need an offset deal to take advantage of flexible features but many mainstream deals offer better rates with overpayments, underpayments and payment holidays.
Until offset mortgages are offered at competitive rates borrowers adopting a proactive approach to their mortgage and savings will see financial benefits over the mortgage term in taking the traditional route. Reviewing mortgage and savings rates regularly (at least once a year) is a must. Anyone who thinks there is no point in saving should think again.