Offset may be the best option for borrowers
Following the announcement that Chelsea Building Society is launching an offset version of its full mortgage range this week, Hagger believes that more providers should do the same.
A trawl through lender websites reveals that some of the biggest names on the high street including Nationwide Building Society, Halifax and Lloyds TSB don’t appear to be currently offering customers mortgages with an offset option, whilst other providers only offer a very limited choice.
Hagger said that “with savings rates at rock bottom for almost three years now and inflation at double the government’s target, you’d expect providers to be promoting offset mortgages as a viable alternative to enable customers to make the most of their savings”.
By not providing offset mortgages, lenders are in effect pushing away profitable customers who seek the ability to benefit from substantial offset tax advantages and flexibility.
For someone with savings of £5,000, offsetting it against a £100,000 mortgage at 4.00% would save interest costs of £8,016 and take 1 year and 3 months off the term of a 25 year mortgage.
Similarly, if you are able to put aside £150 per month into your offset savings account , then you’ll save £20,518 in mortgage interest charges (assuming offset interest rate of 4%), cut 3 years and 2 months off the length of your mortgage and end up with a savings balance of £39,300 when the mortgage is repaid.
Hagger said: “Although considerable investment in terms of money and staff resource is needed to develop offset functionality, lenders should not be deterred by this.
“Lenders should be doing more to offer and promote offset so it’s no longer the exception but the norm when it comes to discussing and choosing a mortgage.”