Scottish Widows Bank launches offset facility

The facility combines the mortgage and a savings account for interest calculation and allows borrowers to save significant sums of money and pay off their mortgage early. The savings element called the Mortgage Deposit Account runs as a separate account alongside the mortgage.

The guiding principles of the new Scottish Widows Bank offset facility are simplicity and value for money. Instead of receiving interest on savings you effectively reduce the amount of interest you pay on your mortgage, so the more money you have in your savings account, the less interest you’ll be charged on your mortgage.

Gordon Bowden, Business Development Director of Scottish Widows Bank says: "The overwhelming feedback we have received from the IFA/mortgage broker market is that existing offset products are too complicated and this is hampering the sales process to customers. By introducing the simple concept of allowing saving account balances to be offset against our existing Flexible and Professional mortgages we believe it takes a lot of the fear out of the product for the client."

The table shows how offsetting savings against your mortgage can reduce your overall interest paid and term of the mortgage.

Without offset / With offset

Savings offset against mortgage - £10,000

Monthly mortgage payment £520.90 £520.90

Total amount payable £156,270.19 £136,101.79



Illustration based on £90,000 repayment mortgage with an annual interest rate of 4.9% and £10,000 in Mortgage Deposit Account, over a 25 year period.

The offset facility also offers the advantage of being tax efficient as savings offset against your mortgage are not subject to income tax. This means that at the current mortgage rate you effectively earn 4.9% on the savings element of your offset facility. This is particularly attractive to higher rate taxpayers who would need to find a instant access savings account paying 8.15% to receive an equivalent benefit.

Gordon Bowden continues: "We recognise that consistency and simplicity are crucial elements in this market and have positioned our offset product with this in mind. Some lenders have altered their product pricing in some way by removing discounts or adding fees simply because offsetting is involved. We have decided against this and opted to maintain our existing discount and pricing policy for customers wanting the benefits of offsetting. This, we believe, gives us the most competitively priced product in the market."

The Scottish Widows Bank’s interest rate is 4.25%, including a 0.65% discount for 2 years for the Flexible Mortgage (90% LTV) and Professional Mortgage (100% LTV).