Offsets make sense after the base rate rise

moneysupermarket.com has found offset mortgages are an excellent option for savers with over £12,500, and they could be the best way to negate the effects of at least two more base rate rises.

Contrary to popular belief, offset mortgages can be fairly straightforward. A homeowner’s money held in a savings or current account is offset against the money owed on a mortgage. The overall debt is reduced and consequently the amount of interest applied to the reduced loan. For example a borrower with a typical offset mortgage from Hinkley & Rugby would effectively reduce the rate by 0.5 per cent, from 6 per cent to 5.5 per cent, if they offset it with £12,500 in savings.

Louise Cuming, head of mortgages at moneysupermarket.com, said: “Taking a holistic view to mortgages and savings can be a much more effective way to manage borrowing. Though they may not realise it, many households looking for a new mortgage would be better off with an offset mortgage, yet offsets still only account for a minority of the market. Unfortunately the majority of customers tend to go back to what they understand – cheap short term deals.

“Offsets are growing in popularity though. With 27 providers offering offset products and the required level of savings no longer being prohibitive, many more people are going to be converted.

"Because the concept is so different, people should understand choosing an offset lender becomes more about the features of the product than simply the rates. Offset mortgages come in a variety of shapes and sizes to suit the varied circumstances of applicants.

"By using the flexibility of an offset mortgage alongside a current account, borrowers can benefit from salary deposits. They should make household purchases on a credit card with 0 per cent for purchases so the salary credit can stay in the current account until the credit card balance needs to be paid."