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Offset mortgages

Tell us about yourself and our broker partner Mojo will find the best offset mortgage rates for you

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The FCA does not regulate mortgages on commercial or investment buy-to-let properties.

Last updated
July 11th, 2024
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What is an offset mortgage?

An offset mortgage lets you use your savings to reduce your mortgage interest. Offsetting is when the lender takes your savings balance away from your mortgage balance, before calculating the interest. This means you pay interest on a smaller balance – reducing the amount you’ll owe.

With offset mortgages your savings remain accessible to you if you need them. You can use them to help you repay your mortgage more quickly, but still have the savings to fall back on in an emergency. Sometimes people find this more appealing than using their savings to make mortgage overpayments or provide a larger deposit.

Offset mortgages are available on both purchase and remortgage products and as interest-only or repayment, however, you'll typically benefit more from an offset repayment mortgage.

Couple sitting on the stairs

How does an offset mortgage work?

With an offset mortgage, you need a savings account with your mortgage lender. Your savings account, or sometimes multiple savings accounts are linked to your mortgage account. Some lenders also allow you to link your current account to the same mortgage. 

Savings held in all linked accounts are then used to reduce the interest owed by offsetting the total savings balance against your outstanding mortgage balance.

For example: If you owe £100,000 on your mortgage, but have £20,000 across your offset savings accounts, you only pay interest on £80,000 of your mortgage balance.

Note: You won’t earn any interest on the savings in offset accounts. To ensure offsetting is the best use of your money, your mortgage interest rate should be higher than the rate you could earn in savings interest (after tax).

How do I get the best offset mortgage rates?

Offset mortgage interest rates are usually higher than ordinary residential mortgages, but not dramatically so. Most sit around the mid-market level, but the cheapest rates or longest fixes may not always be available with an offset facility. 

Offset mortgage rates also vary with your LTV (loan to value) and credit score just the same as any other mortgage. It's a good idea to compare offset mortgages carefully to find the most suitable one available for your circumstances. Look at the total cost including fees, not just interest rates. 

You should also consider how easily you can withdraw your money and the customer service provided by your lender.

Is an offset mortgage cheaper than a traditional mortgage?

It can be, but it will depend on your circumstances. Those with a larger savings balance and in a higher tax bracket will typically benefit most.

If you have a large amount of savings, an offset mortgage has the potential to save you a considerable amount of money on interest over the duration of your mortgage. Keep in mind that you will need to leave the savings in the account to continue benefiting at the same level, however.

The savings you make on interest can either be used to lower your monthly repayments, or you can continue to make the original monthly repayments, and reduce the length of your mortgage term.

Advantages of offset mortgages

  • When savings rates are low, you can make your money work harder by reducing your mortgage interest payments

  • If you have lots of savings you may have to pay tax on the interest you earn, whereas mortgage offsetting is tax-free

  • You can reduce your monthly payments, but still access your savings in emergencies

Disadvantages of offset mortgages

  • Your money may get better returns in long-term investments or a high-interest savings account

  • Offset mortgages often have higher mortgage interest rates than other products

  • Your savings may be put to better use by increasing your deposit and getting a better LTV (loan to value) and therefore more competitive mortgage rate

How much could an offset mortgage save me?

Mortgage interest is often higher than the savings interest paid on a standard savings account. Where this is the case, your money would be better used reducing your mortgage repayments, rather than adding to your savings.

Exactly how much you’re able to save depends on:

  • The current mortgage interest rate you're offered

  • How much savings you have to offset against the mortgage balance

  • Which tax band you're in, as the higher your tax bill, the more you could potentially write-off through offsetting

For example:

  • You have a £150,000 mortgage at 4% APR over 25 years

  • You deposit £20,000 of savings with your lender

  • You only pay interest on £130,000 (even though you still owe £150,000)

Compared to paying the same rate of interest on the full mortgage balance, you save around £800 in interest charges per year.

You also have a savings account paying 2% AER

You’d be around £400 per year better off by offsetting your mortgage than you'd earn in interest by leaving the same balance of £20,000 in your savings account

Kellie Steedquotation mark
An offset mortgage can be a good idea if you’re looking to lower your monthly repayments and have the savings to do it. There are a few different types of offset mortgage, so be sure you pick the best option for your circumstances.
Kellie Steed, Mortgage Content Writer

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Offset mortgages FAQs

Which banks offer offset mortgages?

Not all lenders have offset mortgage deals available, in fact, they are fairly hard to come by.

Of the major high street lenders there is a NatWest offset mortgage available, and Barclays also offer one, but the majority are offered by building societies.

Can I access my savings with an offset mortgage?

Yes, this is the main benefit of using an offset mortgage instead of using your savings to pay down the mortgage debt quicker.

However, depending on who your offset mortgage is with, withdrawing your money may take longer and you may not enjoy instant access as you would with a current account. Some lenders also have a maximum number of withdrawals allowed in a particular period.

Don’t forget that if you withdraw your savings, your mortgage interest payments will increase as the offset savings balance reduces. Equally, you can add to your savings, increasing the interest savings even further.

What fees will I pay with an offset mortgage?

You’ll pay the standard costs that come with any mortgage, such as arrangement fees, legal fees and valuation fees.

The arrangement fee may be higher than other mortgage products, but usually lenders put offset mortgage interest rates slightly higher instead.

What type of offset mortgages can I get?

Types of Offset Mortgages  

There are different offset mortgages available, depending on the type of account you want to link:

  • Savings account offset mortgages  - Usually the preferred offset mortgage, this links your savings account(s) to your mortgage account and just the savings balance is offset against the interest you pay  

  • Current account mortgages - where you have a combined account for your mortgage, savings, and current account activity and the overall balance is used to reduce the interest you pay.

  • Family offset mortgages - family members link their savings accounts to your mortgage and the combined balance of any linked savings offset your mortgage interest. This can be very beneficial for first-time buyers, especially if a couple both has family members willing to link accounts

Most lenders offer the above products on both fixed-rate mortgages and variable rate mortgages.

Can I use an offset mortgage for buy-to-let?

Yes, there are lenders that offer offset mortgages for buy-to-let properties. However, some providers limit offsetting to residential mortgages, so do your research carefully. According to the latest buy-to-let statistics, more than 83,000 buy-to-let mortgages were approved in 2023, and that number is only expected to rise.

Is there a limit to how much I can offset?

It depends on the mortgage provider, but most let you offset up to 100% of the value of the mortgage.

Don’t forget, the account doesn’t earn any interest, so if you have more in offset savings than the outstanding amount owed on your loan, you are likely to be better off moving the spare cash to an interest-paying vehicle.

Can I overpay on an offset mortgage?

This will depend on the terms and conditions of your mortgage deal, but most lenders let you overpay about 10% of the remaining mortgage balance each year, without charging an early repayment fee. However, if you have an offset mortgage, instead of overpaying you can add to the money in your savings account, reducing your monthly interest charges. At the end of the mortgage deal, you could then use those savings to pay off a chunk of the capital you owe without paying any early repayment fees. This way you reap dual benefits from the same savings balance.

What happens if my savings are higher than my mortgage balance?

If your savings balance is higher than your mortgage balance, you won't benefit from those savings above the outstanding mortgage balance with an offset mortgage.

As you don't earn any interest on savings that are offset, once your savings cancel out 100% of the interest payable, excess funds are better placed in savings accounts.

You could also consider whether you might want to use the funds to clear your mortgage, bearing in mind any ERCs (early repayment charges) that may apply.

Should I get an offset mortgage?

Getting an offset mortgage is most beneficial to those with larger savings and paying a higher rate of tax. Because you don't earn interest in an offset linked savings account, you won't have to pay any income tax on the savings.

Self-employed mortgage borrowers can also potentially use their pre-tax income to reduce mortgage interest using an offset mortgage, as income tax is most often paid in arrears.

Those with lower savings may still benefit from an offset mortgage, but if the annual savings are fairly low, your savings may be put to better use by increasing your deposit to lower your LTV. Lower LTV mortgages typically have access to the best mortgage interest rates.

Is putting down a bigger deposit better than getting an offset mortgage?

This depends on your circumstances and the current interest rates available to you. In some circumstances it would be more beneficial to provide a larger deposit to access the best interest rates available.

You could potentially still shorten your term to pay less interest overall than you would otherwise.

A broker will be able to help you compare the best offset mortgages against the best non-offset rates based on the deposit you have available.

About the author

Kellie Steed
Kellie has a wealth of content writing experience, however, in 2020 took a vested interest in the mortgage industry, and chose to specialise in this area exclusively. Her personal goal is to author the most comprehensive and helpful online guide available for each mortgage type, as well as every customer need, no matter how niche.

YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

The FCA does not regulate mortgages on commercial or investment buy-to-let properties.

Uswitch makes introductions to Mojo Mortgages to provide mortgage solutions. Uswitch and Mojo Mortgages are part of the same group of companies. Uswitch Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference number 312850. You can check this on the Financial Services Register by visiting the FCA website. Uswitch Limited is registered in England and Wales (Company No 03612689) The Cooperage, 5 Copper Row, London SE1 2LH. Mojo Mortgages is a trading style of Life's Great Limited which is registered in England and Wales (06246376). Mojo are authorised and regulated by the Financial Conduct Authority and are on the Financial Services Register (478215) Mojo’s registered office is The Cooperage, 5 Copper Row, London, SE1 2LH. To contact Mojo by phone, please call 0333 123 0012.