Buy-to-let
Current account and offset mortgages enable borrowers to link savings and borrowing together. Savings will be offset against the amount borrowed to reduce the debt and borrowing is charged at the same rate as the mortgage rate.
These mortgages currently account for 10 per cent of all new mortgage lending and are predicted to become more popular over the next few years.
But research company Defaqto warns that a borrower needs to be extremely financially
disciplined to make these mortgages worthwhile.
David Black, head of banking at Defaqto, says: If offset mortgages are approached as a fundamental part of the borrowers financial planning process they can offer great benefits. 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.
He warns that 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of withdrawals will result in the borrower paying above market rates for the extra mortgage needed to balance the withdrawn savings.
Black says: For basic-rate taxpayers, offset mortgages can still be attractive to borrowers who do not want to get involved in chasing the best savings rate or the cheapest mortgage.
