Once dubbed the "trendy" option, offset mortgages, already established among our "Aussie" friends, are now becoming a viable mortgage choice for many in the UK. With this in mind moneysupermarket.com has developed its comparison tool.
Offset mortgages, including current account mortgages, enable the consumer to reduce their overall debt by offsetting the credit held in their savings and/or current accounts, against their total mortgage debt. In turn, the debt is reduced and interest is charged against the lesser amount, decreasing the interest added.
For example, a consumer with a £100,000 mortgage, a constant balance of £2,000 in their current account and savings of £15,000, will have £17,000 offset against their mortgage. They will therefore only be charged interest against £83,000. If they continue to maintain the monthly payment based on the £100,000 mortgage this will further shorten the mortgage term by overpaying the mortgage on a month by month basis.
There are an enlarged number of providers offering offset mortgages - at present, circa 19. Increased competition in the market means that rates have become more competitive. For example, Egg today offers a base tracker mortgage, with a discounted rate of 4.24% for six months, a rate of 5.74% until the end of the term and a typical APR 5.80%. Standard Life Bank offers a discount mortgage, with a rate of 4.60% for 9 months, a rate of 6.20% until the end of the term and a typical APR of 6.30%.
No interest is received on the positive balance in the current account or savings account offsetting the mortgage albeit with most current accounts paying 0.1% interest the loss here is pretty much non-existent. Admittedly returns are much better on savings with 5.35% being available at present on easy access but for standard rate tax payers this equates to a net rate of 4.28% and for higher rate tax payers this equates to 3.21%. Using Egg as an example again, a tax payer would need to invest at 7.18% if they are a standard rate payer to receive 5.74% - the Egg mortgage rate - and 9.57% if they are a higher rate taxpayer.
Stuart Glendinning, director of mortgages at price comparison website, moneysupermarket.com said: "The two great Australian exports to the UK in the last decade were margarine that tasted like butter and offset mortgages. Whilst the former spread rapidly it’s now apparent that UK borrowers have developed a taste for the latter. Offset mortgages are no longer a niche product. They are established in the marketplace and look set to grow. Whilst they are not necessarily the best option for every consumer, offsets can benefit those who have adequate savings and a healthy current account, especially higher-rate tax payers.
"It is unquestionably an important product in the market, but like everything it pays to shop around as the market is no longer dominated by a limited number of providers. Consequently this new moneysupermarket.com comparison facility should be welcomed."
Consumers may be baffled by the all the different elements that make up the offset mortgage option, but moneysupermarket.com hopes to break down the confusion by collating key information in a new offset mortgage comparison table on their mortgage channel.
