What is an offset mortgage?

An offset mortgage links your savings to your home loan, helping reduce the interest you pay. Instead of earning interest on your savings, the money in your linked savings account is "offset" against your mortgage balance. This means you only pay interest on the difference between your mortgage and your savings, helping you save money and pay off your mortgage faster.

For example, if you have a £250,000 mortgage and £25,000 in savings, you’ll only pay interest on £225,000. The amount you save can add up over time, potentially saving you thousands in mortgage interest and helping you reduce your mortgage balance faster.

Some lenders let you use savings held by your parents or someone else for an offset mortgage. So whether you or someone you know has savings earning little interest, and you want to lower your mortgage costs without locking that money away, an offset mortgage could be a smart move.

Are you eligible for an offset mortgage?

If you’re considering an offset mortgage, here’s what you need to know to make sure you're in the right position:

Savings

The key to an offset mortgage is having a decent chunk of money that you’re happy to move into a linked savings account. Some lenders even allow you to link the savings of your family and friends to your mortgage. Your lender will want to know that you have enough savings to offset at least part of your mortgage balance. Typically, the more you have, the better!

Credit score:

Whilst there isn’t a specific credit score required for a mortgage, having a higher score can improve your chances of being accepted.

Affordability:

Lenders will still assess your ability to repay the loan based on your income and outgoings. It’s important that your financial situation is strong enough to manage the mortgage repayments.

Be sure to compare the different offset mortgage options to find the deal that works best for your situation. If you have savings but don’t want to lock them away, an offset mortgage might be just the ticket.

One more thing… your home could be repossessed if you don’t keep up with repayments, so make sure you’re comfortable with what you can afford before taking the plunge.

What are my offset mortgage options?

With an offset mortgage, you typically have a choice about how to leverage the savings you link to it:

Reduce your monthly payments

You can choose to use the interest saved to lower the amount you pay each month, keeping the overall mortgage term the same.

Pay off your mortgage sooner

Alternatively, you can keep your monthly payments the same and use the interest savings to shorten your mortgage term. This means you'll pay off your mortgage faster and pay less interest overall.

How much can I borrow with an offset mortgage?

The amount you may be able to borrow with an offset mortgage depends on a few factors, including your income, your savings and your financial situation. Here’s a quick breakdown:

  • Income and affordability: Lenders typically offer loans based on your salary. This is usually up to around four and a half times your income, though some providers may offer you more.

  • Deposit size: While offset mortgages allow you to link your savings to your loan, you’ll still need to have some equity in the property.

  • Savings: The more savings you have, the better! Lenders will assess your savings to determine how much you can offset against your mortgage. If you have enough savings to cover a large part of the loan, this could significantly reduce the interest you pay. Remember, some lenders even let you link the savings of your family and friends to your offset mortgage.

When might an offset mortgage be a good idea?

An offset mortgage can be a great idea if you’ve got savings and want to reduce your mortgage interest while keeping access to your cash. Here’s how one could typically work in your favour:

  • Tax efficiency: With an offset mortgage, you don’t earn interest on your savings, so you won’t pay tax on them. But your savings still work for you by lowering your mortgage interest payments.

  • Save on interest: By linking your savings to your mortgage, you could save a significant amount on interest. The more you deposit, the quicker you’ll reduce the loan balance and pay off your mortgage faster. But remember, you won’t earn any interest on the savings you use to offset your mortgage.

  • Flexible repayments: You can continue making regular payments and pay off your mortgage earlier or reduce your monthly payments, depending on how much savings you have.

  • Quick access to savings: Need cash? You can access your savings whenever you need them. Just remember that if you take money out, your mortgage balance will increase, and so will your repayments.

  • Boosting your family’s homeownership: You could link your savings to your children's mortgage, lowering their interest and making it easier for them to get on the property ladder… potentially a great option for the Bank of Mum and Dad!

Of course, this type of mortgage won’t be the right fit for everyone, so it’s important to think carefully about whether an offset mortgage suits you, particularly if you only have limited savings.

Mortgage guides

Answering your questions about offset mortgages