Offset mortgages more popular as savings rates dwindle

Uptake of offset mortgages is rising as savings rates dwindle.

According to HSBC-owned lender, first direct, new offset mortgage business rose 16% in the final quarter of last year.

The firm asserts that swapping to this type of home loan can reduce the length of a £100,000 25-year mortgage by 33 months and save £18,322 in interest payments over the lifetime of the loan.

Offsetting does this by taking deposits into account in calculating monthly interest charges.

No interest is paid on the savings offset against the loan but at today’s savings rates the loss incurred can be easily made up by paying less interest on the mortgage.

first direct spokesman, Jimmy Kelly, comments: “Our research shows offset mortgage lending now accounts for £1 in every £10 being lent to UK mortgage holders, and is on course to reach a record share of new mortgage lending in 2009.”

However, the study revealed that many homeowners are unaware of the benefits of offsetting with 48% of those questioned not understanding the basic principle and 21% unaware that offsetting can save money.

In the past three years, 400,000 new offset mortgages have been put in place, taking the amount of UK homeowners with an offset mortgage to 1.1 million, according to first direct.

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