Using Offset Mortgages for instant access to money

Our clients were looking to purchase a property in the South of England for £1.15 million. They required a mortgage of £500,000, against which they intended to offset £200,000 in savings. This was because they wanted guaranteed instant access to the money – which would not have been possible if they had used it to reduce the mortgage to £300,000 – and wanted a better return on it than if it had simply sat in an instant access account.

A standard flexi-access savings account might yield an interest rate of 3%, however, if the client chooses to offset their mortgage, which is being charged at a rate of 5.5%, they are essentially receiving a return of 5.5% on their £200,000 in the savings account. The offset mortgage rate does come at a slight premium, but this is comfortably ‘offset’ by the gain in return on savings. Another benefit is that they don’t have to pay tax on the interest as they’re not actually realising the gain.

Initially, they did try their own high street bank and received an agreement in principle for a fixed rate offset interest-only mortgage. However, it then took two months before they could get an appointment with the bank’s mortgage adviser for a full mortgage interview, at which point they were turned down as the term would take them past age 65. Fortunately for our clients, they also consulted Private Finance for a second opinion and we suggested submitting a second application as a backup.