Offset mortgages now account for approximately £10 out of £100 borrowed to finance the purchase of bricks and mortar in the UK. New lower rates for this type of lending have boosted the popularity of offsetting.

Offsetting could allow you to repay your mortgage earlier because you are paying interest on a smaller mortgage balance.

You will not receive any savings interest, but banks and building societies pay lower rates on savings accounts than they charge on mortgages.

There are other advantages. You keep control of your savings because you can withdraw your money at will. There is no tax on the interest from your savings.

The tax saving is most valuable for higher-rate taxpayers who would otherwise pay 40 per cent tax on their savings interest.

Offset loans tend to appeal to slightly older homeowners with plenty of savings. Although offsetting is most worthwhile for this type of borrower, some banks say that you benefit if your savings amount to approximately 8 per cent of your loan.

Your home may be repossessed if you do not keep up repayments on your mortgage.
Article date: 10.06