Offset mortgage products at five-year low - Mortgages - News |

News News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Offset mortgage products at five-year low

Offset mortgage products at five-year low

Category: Mortgages
Author: Leanne Macardle
Date: 26/11/2018

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Offset mortgages, which link a borrower's savings to their mortgage and offset the balance, can be a great way to reduce the size of an outstanding mortgage, particularly for those with a healthy savings pot. However, those who were hoping to take advantage may be in for a disappointment, with latest research from Moneyfacts showing that the number of offset products has now dwindled to a five-year low.

The figures show that there are currently just 233 offset mortgage products available, a dramatic reduction from the 370 available a year ago and the lowest figure seen since November 2010, when there were 210 such products on the market.

This will come as disappointing news for those who were hoping to put their savings to good use, particularly given the poor performance of the savings market in recent years, but all is not lost: the offset mortgage rates on offer are currently at record low levels, in line with the rest of the mortgage market, so although there are less products to choose from, those that are available will be at the lowest rates ever.

Take a look at the table below to see how things have changed in more detail:

Nov-10 Feb-14 Feb-15 Today
Offset Average Fixed 4.67% 3.47% 3.25% 2.48%
Offset Average Variable 3.60% 3.27% 2.94% 2.75%
Offset Product Numbers 210 324 370 233
Compiled: 15.02.16

Nonetheless, the overriding trend is clear, and there's a chance that the offset market could contract further in the months to come. Charlotte Nelson, finance expert at Moneyfacts, explains:

"Offset mortgages were once seen as the ultimate flexible product as they allowed borrowers to reduce the interest paid on their mortgage while simultaneously having instant access to their savings pot, so it's disappointing to find that the number of offset products has fallen to a five-year low.

"Sadly, offset products are yet another casualty of the poor state of the savings market. Providers just do not need the extra cash from savers, and the savings linked to offset mortgages are no exception. As a result, lenders have pulled some offset products from the market.

"This may be the start of a continued decline in offset mortgages: the new personal savings allowance coming into place in April may make the offset mortgage redundant for many borrowers, particularly if they had previously opted for one for tax efficiency purposes. The new rules will mean that savers can earn £1,000 tax-free; many borrowers may therefore find that their savings are better kept elsewhere.

"In the current low-rate mortgage environment, it's also evident that there are more competitive deals out there. For instance, the lowest two-year fixed rate currently available is priced at 1.15%, 0.22% less than the lowest two-year offset fixed deal. Borrowers will therefore need to decide whether the flexibility of an offset mortgage is worth paying a premium for.

"The sad truth is that the current trends in the savings and mortgage markets are likely to lead to the steady diminishment of offset mortgages, which means that a flexibility once enjoyed by many may gradually disappear, with mortgages becoming more rigid as a result."

What next?

Compare savings rates

Find a mortgage

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.