Offsetting can close the savings gap

Chancellor Alistair Darling began this year\'s Budget statement by referencing the global liquidity crisis and the nationalisation of Northern Rock before going on to deliver what he called a Budget for stability in unstable times.

There was a smattering of good news in the speech, especially for families and pensioners who will receive increased benefits.

I was also pleased to see the mini-cash ISA threshold increased from £3,000 to £3,600. This is good news for savers and will go some way to-wards plugging the savings gap.

This move will command strong public support, with research for my company showing that almost eight in 10 savers supported raising the ISA threshold before the Budget.

As one of the few lenders offering clients the chance to offset ISAs, this is something we have campaigned for as part of our educational programme.

When offsetting ISAs, the savings made from reduced interest payments are not subject to tax so this is a tax-efficient way to save as well as pay off mortgages. And once they are paid off, ISAs remain tax-free.

In fact, a client with an average mortgage of £151,659 over 25 years saving £3,600 each year and offsetting this would save £78,028 in interest as well as reduce their mortgage term by six years.

They would also have £68,400 left in cash savings, delivering total savings of £146,428. These are compelling figures that demonstrate the potential of offsetting for savers.

Offset mortgages also offer more flexibility than conventional products by allowing consumers to make overpayments, underpayments and take payment holidays. They provide individuals with the ability to control their finances and take a more holistic approach to managing them.

In today’s market, consumers are considering their financial portfolios as a whole and this is driving increasing interest in offsetting. Indi- cammy amaira viduals are demanding more flexibility and looking for products that make their money work harder for them.

This is underlined by Council of Mortgage Lenders figures that show 170,000 consumers opted for offsets in 2006 in a market worth £24bn. Research also shows that 60% of home owners have now heard of offset mortgages, compared with only a quarter in 2000.

Growing awareness of offsetting has been established through sustained marketing and educational campaigns, as well as industry commentators showing their support for the concept.

CML director-general Michael Coogan recently wrote about offsetting in the Daily Telegraph, proving the product has moved into the mainstream.