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Time for one of the 203 offset mortgages?

18th May 2010 Print

Independent financial research company Defaqto believe that the combination of flexibility, tax advantages and low interest rates mean that now could be the time for higher rate taxpayers to consider an offset mortgage.

David Black, Banking Specialist at Defaqto, said: "Offset mortgages can work well for higher rate taxpayers who have a mortgage and a reasonable level of savings. Offset mortgages effectively offer tax free interest on savings at the same rate as the mortgage. The savings interest is offset against the mortgage interest payable rather than actually being received."

A savings pot of £20,000 would, at the average offset mortgage rate of 4.25% knock £850 off the annual mortgage interest on a mortgage higher than £20,000. To earn that amount on a taxable savings account a higher rate taxpayer would need to find a savings account paying a gross interest rate of 7.08%.

Others who could benefit from an offset mortgage include:

The self-employed
Buy-to-let landlords
Those receiving a fairly substantial part of their income in the form of an annual bonus
Those paying school fees

In these instances an offset mortgage can provide the borrower with the flexibility required to assist with irregular income streams or outgoings.

Mr Black continued: "There are some significant differences in the features offered by the 160 different offset mortgages so consumers should think about what features are important to them when doing their research. For example, if they want to have a current account linked to their mortgage only 28% of offsets offer this facility."

Defaqto's Star Ratings assess 68 different features and benefits of offset and current account mortgages. They reflect the level of the features and benefits offered - rating them from a low level 1 to a high level 5. Consumers can see the simple tool on Defaqto's website: