First Direct, the online bank which is part of the larger HSBC group, have claimed that an offset mortgage could allow owners to save as much as £40,000. The bank’s offset mortgages are some of the cheapest available, but these claims don’t appear to be 100 per cent justified if the numbers are examined more closely.
An offset mortgage streamlines your finances somewhat by allowing you to combine your mortgage and savings into a single place. You pay less interest as the savings reduce the outstanding balance on the mortgage, but you can still access these savings at any time as with some standard savings accounts.
This system can encourage users to budget more tightly and thus could save money in the long run. Seeing a large negative balance against what is supposed to be savings (a debt that grows when you take anything from those savings) is enough for anyone to appreciate the true cost of being a homeowner. Unless your savings is remotely equal to your mortgage, which is rare, the disparity will be obvious.
First Direct’s idea is the most appealing of them all; higher rate taxpayers can face taxes as high as 40% on their savings interest when using traditional savings accounts. This tax is avoided if they counteract it by reducing their mortgage interest using an offset mortgage.
It is true that some savings can be made by using an offset mortgage, but this only really applies to the aforementioned customers who are higher-rate taxpayers. It is best to still consider all offset deals against the separate package of a non-offset mortgage and separate, easy access savings account. Previous comparisons have shown that an offset mortgage does not always save everyone a notable amount of money, or indeed any to speak of at all.