Offsetting best suits better off says Defaqto

Offset mortgages work best for high rate taxpayers with above average savings who are prepared to commit for the long term, says new research.

Basic rate taxpayers prepared to play a long game rather than regularly switching deals to find the best mortgage rate will also benefit from offsetting, added research firm Defaqto.

Offset mortgages allow homeowners to count their savings and current accounts against the overall debt, enabling them to cut interest payments.

Most homeowners compare mortgage rates simply on the basis of APR, however.

But most borrowers choose their mortgage based on the lowest initial interest rate, Defaqto noted.

“If offset mortgages are approached as a fundamental part of the borrower’s financial planning process they can offer great benefits,” said David Black, head of banking at Defaqto.

“However, they are definitely products for the long-haul and should not be contemplated unless borrowers are fairly certain that they will be able to leave what can be significant sums of money more or less untouched in savings accounts over the mortgage term.

“Any permanent reduction in the size of the deposit because of withdrawals will result in the borrower paying above market rates for the extra mortgage needed to balance the withdrawn savings.”

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