Offset Mortgage
Combine a mortgage and bank account to potentially reduce interest payments
Your Home may be Repossessed if you do not keep up repayments on your mortgage
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Offset Mortgage
What is an offset mortgage and how do they work?
An offset mortgage is fairly straightforward, but it’s not widely used in the UK. People aren’t very familiar with this, but essentially it’s where you have a mortgage with a savings account attached. Any money in that savings account will offset the interest you would be paying on your mortgage.
For example, you might have £500,000 on your mortgage and if you put £300,000 in your offset savings account, you only pay interest on the difference of £200,000.
You can do that as a repayment mortgage, but a lot of people choose interest only as it allows them to manage their payments effectively. Your monthly payment reduces if you’re paying less interest.
With a repayment mortgage, you can ultimately reduce your mortgage balance and pay off the debt, but some people like the comfort of interest only, where putting money into your offset savings reduces your monthly payment.
How can an offset mortgage help me save money?
You save by offsetting those savings and paying less interest on your mortgage.
As advisors, though, we have to be conscious of whether those savings could be better used in a different way. A standard savings account could get you a certain percentage return. In an offset mortgage, you’re not paying interest – but you’re not necessarily making interest either.
There can also be tax implications to take into account. Having said that, I’ve seen plenty of people saving tens of thousands in interest over the term of their mortgage. It can be really effective.
How do I know if I’m eligible for an offset mortgage?
The simple answer is that if you’re eligible for a mortgage with the lender and they offer this type of product, you should be able to get an offset mortgage.
There are different reasons to consider this. The people that really save money will be those who want to set money aside and not use it right away. Perhaps they want to raise money to work on their property, or buy another one.
If they take a new mortgage with a residential lender and raise capital on top, they’re paying interest the whole way through that new two, three or five-year fixed scheme.
With an offset, you might take an additional £100,000 or £200,000 out of your property, put it in your offset mortgage and use it when you need to. You’re not paying extra interest while you’re waiting to spend the funds.
Another area where people often benefit is with self-employed income. They might have a tax bill coming up – and rather than putting money aside in their savings, they put in an offset savings account attached to the mortgage. That stops you paying interest on your mortgage, which is fantastic, and you’ve got that money easily available. You can budget for the future and keep that money aside.
Can I still deposit and withdraw from my savings?
Absolutely. It is still a savings account – it just links to your mortgage. I’ve seen people use direct debits and pay their salaries into it. You can benefit from that reduction straight away just from your salary, using it like a normal account.
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Can I overpay or repay my offset mortgage?
Technically, yes. You’re likely to have the standard 10% facility for overpayments, and you can also repay it in the same way as any other mortgage.
At the time we’re recording this in September 2025, a lot of offset mortgages are fixed rates, although some are variable. At the end of your two, three or five-year fixed rate, you could just repay it or move it onto a normal mortgage – you might only have that offset mortgage for a couple of years.
You’ve got to consider whether overpaying is the right thing to do, however. A lot of people put the money into the offset account instead, because if you overpay it’s harder to get that money back.
By putting it in the offset account, you’ve achieved the purpose of reducing the interest you’re paying. But you’ve still got those funds available if you need them. It just gives you a little bit more flexibility until you’re ready to decide what to do with the rest of the mortgage.
Do many lenders offer offset mortgages?
Not really – you count them on one hand, in a sea of over 100 different lenders. Only a pretty small percentage do these.
What are the advantages and disadvantages of an offset mortgage? Is it worth having one of these?
We’ve covered the advantages already, but one disadvantage is that they are often different rates to the lender’s normal products and might be slightly higher than the best in the market.
It’s a matter of weighing up whether the potential interest savings are worth paying a higher rate. That’s one of the biggest questions. But the people that really benefit from these are those who want that flexibility and funds available.
If you are looking to invest in property, it’s handy to have the funds in your offset. You are essentially a cash buyer at that point, because you’ve got the money available to use. You’re not waiting for a mortgage to complete.
Also, it’s an everyday savings account. You can take money out at any point, which can give you an advantage as a buyer. There are potential tax benefits, as well, so talk to a tax advisor for guidance there. It’s all down to your personal circumstances and whether it really works for your scenario.
An offset doesn’t work for most people, though. There are specific situations where they can be a useful tool.
What else do we need to know about offset mortgages?
An important thing is that you can actually offset a Buy to Let mortgage – not many people know that. They’re few and far between, with only a couple of products on the market. It’s a lever that a portfolio landlord could use on their properties.
It can work if you have an unencumbered property: you can borrow money on that, pay it straight into the offset account, and not pay any interest until you then go and buy a new property. It’s particularly useful if you buy at an auction.
More generally, this is an opportunity to discuss with your mortgage advisor, especially when looking at your future plans. It can be a really helpful tool, particularly when it comes to buying property or where you’re self-employed. Those are the main two areas where we really see people benefit from this.
It’s also useful for self-builds, where you’re looking to build a property on a plot of land. It’s going to take years, but you can potentially borrow money with ultimate flexibility. It’s almost like a funding line you can access whenever you like. You’ve got to be very careful with the timings of all of this, but it’s a great option.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
WE ARE NOT PROVIDING SAVING ADVICE
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
NOT ALL BUY TO LET MORTGAGES ARE REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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