Offset mortgages - hit or myth?
A new survey conducted by Yorkshire Building Society has revealed some worrying statistics in relation to Offset mortgages including the fact that only 7 per cent of borrowers considered an Offset product when taking out their mortgage.
Of more concern, 40 per cent of borrowers with medium or large savings balances were not offered the product as an option highlighting the lack of awareness in the market as a whole and the importance placed upon Offset by other lenders.
Through research the Yorkshire Building Society looked at the reasons behind these figures and questioned why up to 10 million homeowners may be missing out on making their most of their savings.
Commenting on the findings the Yorkshire's Group Direct Mortgage Manager Chris Smith said; "With one in three mortgage applications at the Yorkshire being on an Offset basis we are surprised that this is not mirrored throughout the market as a whole. In a bid to dispel some of the myths around Offset the Yorkshire questioned key groups to find out why offset sales remain so low throughout the UK despite their significant financial benefits particularly in the current market."
The findings showed that 30 per cent of those questioned were not even aware that Offset existed, one third had no idea how it worked - and a further third have an incorrect understanding.
Chris continued; "One of the things that we found interesting were the amount of myths that surround Offset. Common misconceptions have been that to make an offset work you need a lump sum, that you can't access savings, that money can only be held in one account or that rates are much higher. The reality however is much different - you can hold separate accounts, you only need to invest a small amount to make a difference and you will have instant access to your savings at all times. Additionally as part of our pricing policy at the Yorkshire we only price our Offset products 0.1 per cent higher than those of our regular non-offset mortgage range."
"Overall our figures at the Yorkshire are above the market average accounting for 30 per cent of our applications in relation to Offset. Of those 75 per cent shorten the term of their loan and 25 per cent reduce their monthly payments. In part this highlights the current climate - with now being the ideal time to look at an offset product due to the low Bank of England Base rate coupled with lower savings rates."
To illustrate to borrowers how an offset mortgage could help them the Yorkshire has created an easy-to-use demonstrator showing both lump sum and monthly savings. For the former, it shows that savings of as little as £2,500 could shorten a £100,000 mortgage by 7 months from its 25 year term, reducing the interest paid by £4,142 (an equivalent savings rate of 5.0% for a basic rate tax payer). It also shows that saving just £25 each month could reduce the mortgage term by 9 months, reducing the interest paid by £4,908 (also an equivalent savings rate of 5.0%) and leaving the borrower with a nest egg.
The demonstrator is available online at ybs.co.uk/offsetdemo.