Offset Mortgages
As a leading offset mortgage broker in the UK, Fox Davidson specialises in helping clients secure the best offset mortgage deals. Offset mortgages are an innovative, tax-efficient way to cut mortgage costs while keeping your savings accessible. Ideal for higher-rate taxpayers and those with substantial cash reserves, they can save thousands in interest. We’ve assisted hundreds of clients in unlocking these benefits, ensuring competitive rates and tailored solutions.
What Are Offset Mortgages and How Do They Work?
An offset mortgage links your savings and current accounts to your mortgage, reducing the balance on which interest is charged. You don’t earn interest on savings—instead, they offset your debt.How it works:
- Interest is calculated daily on your mortgage minus linked savings.
- Example: £200,000 mortgage + £30,000 savings = interest paid on £170,000 only.
- Full access to funds anytime, no penalties.
- Link multiple accounts for maximum benefit.
At Fox Davidson, our access to UK lenders ensures you get the top offset mortgage rates for your needs.
Key Benefits of Offset Mortgages
Offset mortgages offer more than just savings—they provide flexibility and efficiency.
- Lower Monthly Payments: Reduce payments by offsetting savings. E.g., £200,000 at 5% over 25 years drops from £1,169 to £993 monthly with £30,000 offset—saving £176/month.
- Faster Repayment: Keep payments the same to shorten your term. The above example cuts it by over 4 years.
- Tax Efficiency: No tax on “earnings” from offsetting—equivalent to gross interest without limits. Great for higher-rate taxpayers (2024/25 allowance: £500).
- Flexibility: Withdraw savings anytime; link current accounts for extra offsets.
Types of Offset Mortgages
Repayment Offset Mortgages
Standard capital + interest payments, but on a reduced balance.
- Option 1: Lower monthly payments for more cash flow.
- Option 2: Maintain payments to pay off sooner.
Interest-Only Offset Mortgages
Pay interest monthly; repay capital at term end (needs a repayment plan).
- Stricter criteria: Higher deposits, strong income/credit.
- Example: £200,000 at 5% reduces from £833 to £667 with £40,000 offset.
Fox Davidson navigates these options with expert advice.
Offset Mortgage Rates and Costs
Offset rates are typically 0.1%-0.3% higher than standard (e.g., 4.7% vs. 4.5%). But with £15,000+ savings, benefits outweigh costs:
| Savings | Standard Savings (4.5%) | Offset Savings (4.7%) | Annual Net Saving |
|---|---|---|---|
| £10,000 | £1,125 | £1,008 | £1,008 |
| £20,000 | £2,250 | £2,133 | £2,133 |
| £30,000 | £3,375 | £3,258 | £3,258 |
*Based on £150,000 mortgage; 0.2% premium.Rates adjust with base rate changes, but offset value scales. We compare 70+ lenders for the best deals.
Who Should Consider an Offset Mortgage?
Perfect if you:
- Have £15,000+ in savings.
- Are a higher-rate taxpayer.
- Are self-employed with cash reserves.
- Plan major expenses but want interest savings.
Eligibility: 15-20% deposit, good credit, stable income.
Pros and Cons:
Pros:
- Huge interest savings (e.g., £20,000+ over 25 years on £200,000 with £30,000 offset).
- Tax-free benefits.
- Full fund access; family linking options.
Cons:
- Slightly higher rates.
- Needs substantial savings.
- Fewer lenders; more management.
Common Offset Mortgage FAQs
Most lenders will allow you to offset 100% of the mortgage balance meaning you do not pay any interest at all.
Yes, in an offset mortgage account your saving are yours to use as you wish.
Imagine you have a £250,000 repayment offset mortgage at a 5% interest rate over 25 years. Without offsetting, your monthly payment is approximately £1,474. Now, you link a £40,000 savings account to your offset mortgage. Interest is calculated daily on the net balance (£250,000 – £40,000 = £210,000). Here’s how it works:
Option 1: Lower Payments Monthly payment drops to £1,238—saving £236/month (£2,832/year).
Total interest saved over 25 years: ~£31,000 (assuming consistent savings).
Option 2: Faster Repayment Keep paying £1,474/month.
Mortgage term reduces to ~21 years, 3 months—saving over 3.5 years and ~£37,000 in interest.
You retain full access to your £40,000 savings, and the interest “savings” are tax-free, ideal for higher-rate taxpayers. Fox Davidson can secure the best rates for this scenario from 80+ UK lenders.
The best offset mortgage depends on your financial situation, including savings, income, and goals. The best offset mortgage will vary as lenders change their offset mortgage rates regularly.
How Fox Davidson Can Help as Your Offset Mortgage Broker
As specialist offset mortgage brokers, we offer:
- Access to 80+ lenders for competitive offset mortgage deals.
- Personalised savings projections.
- Full application support.
- Free consultation and ongoing advice.
To find the best offset mortgage deal, contact Fox Davidson As specialist offset mortgage brokers our research ensures we secure the most competitive offset mortgage rates tailored to your needs at the time.
