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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