15th February 2016
Offset mortgages, which link a borrower’s savings to their home loan can be a great way to reduce the size of an outstanding debt.
But new research from Moneyfacts.co.uk shows has found the number of products has dwindled to a five-year low.
Offset mortgages were once seen as the ultimate flexible product as they allowed borrowers to reduce the interest paid on their mortgage while simultaneously having instant access to their savings pot.
Charlotte Nelson, finance expert at Moneyfacts.co.uk, explained however that offset products are yet “another casualty of the poor state of the savings market”.
Providers just do not need the extra cash from savers, and the savings linked to offset mortgages are no exception. As a result, lenders have pulled some offset products from the market.
Nelson said: “This may be the start of a continued decline in offset mortgages: the new personal savings allowance coming into place in April may make the offset mortgage redundant for many borrowers, particularly if they had previously opted for one for tax efficiency purposes.
“The new rules will mean that savers can earn £1,000 tax-free; many borrowers may therefore find that their savings are better kept elsewhere.”
Nelson highlighted that in the current low-rate mortgage environment, it is also evident that there are more competitive deals out there. For instance, the lowest two-year fixed rate currently available is priced at 1.15%, 0.22% less than the lowest two-year offset fixed deal. Borrowers will therefore need to decide whether the flexibility of an offset mortgage is worth paying a premium for.
“The sad truth is that the current trends in the savings and mortgage markets are likely to lead to the steady diminishment of offset mortgages, which means that a flexibility once enjoyed by many may gradually disappear, with mortgages becoming more rigid as a result,” she added.
|Offset Average Fixed||4.67%||3.47%||3.25%||2.48%|
|Offset Average Variable||3.60%||3.27%||2.94%||2.75%|
|Offset Product Numbers||210||324||370||233|
|Source: Moneyfacts.co.uk||Compiled: 15.2.16|