‘Offsetting’ promises impressive savings for borrowers
An offset mortgage is a common mortgage product in the UK, and is designed for the purchase of domestic property. The key feature is the ability to reduce the interest charged by offsetting a credit balance against the mortgage debt. For example, if a mortgage balance is £200,000 and the credit balance is £50,000, interest is only charged on the net balance of £150,000.
There are limits however, and may be subject to periodic review. The lender may also put restrictions on the lending limits towards the end of the mortgage term with the goal of ensuring capital repayment. Offset mortgages were introduced in 1997, and were initially thought of as a niche product.
However, borrowers in the UK could save a whopping £345 billion collectively- if offsetting were as widespread in the UK as it is in Australia, according to a new report.
Director of sales at Intelligent Finance (IF), Cammy Amaira said, “In Australia, the popularity of offset has a lot to do with mind-set. Australians value home ownership as much as we do, but they don’t want their mortgage to take over their lives, making offset their ideal choice.” IF was launched in 2000 and is a division of the Bank of Scotland.
Mr. Amaira added that offset mortgages have “come a long way” in the past ten years in the UK; but IF would like to see the financial option take a boom in popularity, like it has in Australia and the “latest number crunching roves it’s definitely worth it”.
The average borrower in the UK could save a very attractive approximation of £70,000 with an offset mortgage, the research from Intelligent Finance has revealed.