Barclays celebrates a decade of offset mortgages
Barclays celebrates a decade of offset mortgages
On June 1, 2000, Woolwich mortgages changed borrowers mortgage habits by launching the UK's first offset mortgage, saving its borrowers over 1bn in mortgage interest.
According to figures from Barclays, the average Woolwich offset mortgage stands at 132,000 and customers are keeping an average 21,000 in their savings accounts. By offsetting their savings against their mortgage, customers are finding they are able to pay off their mortgages around three years early.
To mark the 10th anniversary of the offset mortgage, Woolwich mortgages is reducing the rate of its current offset deal by 40 basis points - from 3.49% (base + 2.99) to 3.09% (base + 2.59).
Andy Gray, head of mortgages for Barclays said: "Offset mortgages stimulated a new approach to the way people have borrowed money over the last 10 years, previously people treated a mortgage as a 25 year commitment, now people are knocking years off their mortgage, saving them masses in interest.
"It's not surprising that offsetting has caught on, the concept is brilliantly simple. People just manage their current account, savings and mortgage separately as they have always done and in the background all the components are added together every day, to save people interest and pay off their mortgage earlier.
"And the beauty is that these types of mortgages really benefit tax payers, whether you are paying 20, 40 or 50% tax the equivalent gross rate of return on savings ranges from 3.61 to 5.78%. Anyone paying tax will be keen to limit the impact of tax and inflation. Many customers with savings also want to keep them accessible rather than commit them to a long term bond or a traditional mortgage where you have to overpay, with offset the money is always on-hand but cutting the mortgage interest automatically."
Unlike some providers, Woolwich offset mortgages have the advantage of being linked to Barclays bank accounts, which means that customers can continue to manage their current and savings accounts as normal.
The following may benefit from offset:
Anyone with 5% of their mortgage balance in savings
Those that are self employed, who can ring-fence the money for their tax bills into the offset arrangement
Those who invest money in ISAs can offset the ISA money to the mortgage
Tax payers - the more tax you pay the higher the benefit of offset. Money held in savings will get an effective interest rate of 3.61% for basic rate tax payers and 4.82% for 40% tax payers and 5.78 % for 50% tax payers.