Offsets provide best value
David Black, banking specialist at Defaqto, said: "Offset mortgages can work well for higher rate taxpayers who have a mortgage and a reasonable level of savings. Offset mortgages effectively offer tax free interest on savings at the same rate as the mortgage. The savings interest is offset against the mortgage interest payable rather than actually being received."
A savings pot of £20,000 would, at the average offset mortgage rate of 4.25 per cent knock £850 off the annual mortgage interest on a mortgage higher than £20,000. To earn that amount on a taxable savings account a higher rate taxpayer would need to find a savings account paying a gross interest rate of 7.08 per cent.
Those receiving a fairly substantial part of their income in the form of an annual bonus
In these instances an offset mortgage can provide the borrower with the flexibility required to assist with irregular income streams or outgoings.
Mr Black continued: "There are some significant differences in the features offered by the 160 different offset mortgages so consumers should think about what features are important to them when doing their research. For example, if they want to have a current account linked to their mortgage only 28 per cent of offsets offer this facility."
Date: 19th, May, 2010
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