Offset mortgages recommended to first time buyers

| February 13, 2012 | 0 Comments
Offset mortgages recommended to first time buyers

Paula John, the editor-in-chief of Your Mortgage magazine, has advised first-time-buyers to consider paying for their home through an offset mortgage.

Offset mortgages are “the way forward” she said, suggesting they are “the most tax-efficient way of using any excess income”.

However offset mortgages are only suitable for potential house buyers who have a significant amount of savings, as they take into account the amount of savings a borrower has, and ‘offset’ the mortgage loan against it.

If a house buyer has £15,000 in savings and a mortgage of £100,000, for instance, the interest on the mortgage would only be payable on £85,000.

Monthly repayments are based on the full amount but the reduced interest payments mean that the mortgage is paid off more quickly.

With the base rate at 0.5% and savings earning very little interest, offset mortgages can be a good way of making the most of a nest egg.

Ms John said: “I am staggered by how few people in this country take advantage of offset mortgages; they certainly are the way forward and everyone I know in the mortgage industry has got one themselves.”

The latest figures from the Council of Mortgage Lenders (CML) suggest that the first-time buyer market is improving.

The number of mortgages agreed for first-time house buyers increased to 18,700 in December, 7 per cent more than the previous month, and a 14 per cent increase compared with December 2010.

The CML attributes the increase to a race by first-timers to buy a property before the end of the stamp duty holiday.

The government temporarily suspended the 1% stamp duty rate for first-time buyers, on properties worth between £125,000 and £250,000, but it is due to be reinstated in March 2012.

In contrast, there was a 6 per cent fall in the overall number of mortgages agreed, with just 509,500 mortgages approved last year.

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