Offset Mortgages

Your savings offset your mortgage balance, reducing the interest you're charged each month

Keep instant access to your savings while still benefiting from mortgage interest reduction

Reduce your balance faster by offsetting savings, shortening your mortgage term

Higher-rate taxpayers can save more by offsetting rather than earning taxable savings interest

Offset mortgages link your savings and/or current account to your mortgage. Instead of earning interest on your savings, they're used to reduce the mortgage balance for interest calculation purposes. Example: £200k mortgage with £20k savings = interest charged on £180k. You pay less interest but earn no interest on savings. Your savings remain accessible—you can withdraw them anytime, though the offset benefit reduces.

Offset mortgages benefit higher-rate taxpayers most. Example: £30k savings at 5% earns £1,500 interest, taxed at 40% = £900 net. Same £30k offsetting a 5% mortgage saves £1,500 mortgage interest tax-free. The higher your tax rate and the more savings you have, the more valuable offset becomes. Basic rate taxpayers see smaller benefits—compare offset rates (usually 0.5-1% higher) against standard mortgages carefully.

Offset mortgages work best for: higher-rate (40%) or additional-rate (45%) taxpayers, those with substantial savings (£20k+) they want to keep accessible, self-employed with irregular income who need cash buffers, or people saving for specific goals while paying down their mortgage. Not ideal for those with small savings or basic-rate taxpayers—standard mortgages with competitive rates are usually better value.

Offset mortgages typically charge 0.3-1% higher rates than equivalent standard mortgages. This premium must be outweighed by your offset savings benefit to be worthwhile. Example: if you pay 0.5% extra on £200k (£1,000/year) but save £1,500/year by offsetting £30k savings, you're £500 better off. Always calculate the break-even point—how much savings you need to offset to justify the higher rate.

Most offset mortgages offer excellent flexibility: unlimited overpayments without penalty, underpayment or payment holiday options (if you've overpaid previously), ability to add or withdraw savings anytime, and portable so you can take them to a new property. This flexibility makes them ideal for people with variable income or those who value having accessible emergency funds while reducing mortgage interest.

The offset benefit compounds over time. Using the mortgage term reduction option (paying same amount but finishing early) can save years. Example: £200k mortgage over 25 years at 5%, offsetting £30k saves about 3.5 years and £35k total interest. The earlier you offset and the longer you maintain savings, the greater the benefit. Family offset products let parents/relatives offset their savings against your mortgage.