The UK's Council of Mortgage Lending has published new research that has revealed a strong growth in the number of consumers choosing an offset mortgage.
According to the research, 170,000 offset mortgages worth GBP29.3 billion were taken out in 2006, equivalent to 7% of all new lending, while the year-on-year growth of offset mortgages between April 2006 and March this year was 49%, compared to just 15% for non-offset lending.
Offset mortgages combine a mortgage and savings in one account, and offer borrowers a number of advantages, including the option to make an over-payment or an under-payment on the mortgage; lower total interest payments and a shorter mortgage term because the interest is charged against a lower mortgage balance; any savings the borrower has will earn a rate of interest similar to the mortgage rate, but are not subject to income tax; and any savings in the borrower’s account help to reduce mortgage interest costs, which helps mitigate the effects of interest rate rises on monthly mortgage payments.
The research also revealed that the majority of offset mortgages are sold through intermediaries, which have seen year-on-year growth of offset products increase by more than 100% in some months over the past two years.
Author of the research and CML statistician Phoebe Zhang said: Going forward, continued innovation by lenders will help to increase consumer awareness of offset products and expand the market potential for offsets in the future.