(Turn your savings into an interest-cutting machine without locking them away)
Snapshot
- An offset mortgage links your mortgage to a savings or current account.
- Every £1 in that account “offsets” £1 of loan principal when daily interest is calculated.
- Result: pay less interest and/or clear the loan years sooner while keeping instant access to your cash.
- Works best for higher-rate taxpayers or anyone who keeps sizeable rainy-day funds.
1. Offset vs. Standard Mortgage — what’s different?
| Feature | Standard Repayment | Offset Repayment |
|---|---|---|
| Savings earn interest |  Yes (taxable) |
 No |
| Mortgage charged on full balance | Yes |
Reduced by savings |
| Access to savings | Yes |
Yes |
| Potential tax benefit | Limited |
Interest “saved” is tax-free |
Example: £250k mortgage @ 5 % with £25k in the linked account
• Standard deal: interest charged on £250k = £12,500/yr
• Offset: interest charged on £225k = £11,250/yr → £1,250 saved
2. Two ways offsets save you money
- Monthly payment stays the same → term shrinks.
- Keeping payments at the original level overpays the principal every month and can knock 3–6 years off a 25-year term.
- Monthly payment drops → flexibility up.
- Lender recalculates a lower payment; handy during maternity leave or irregular income periods.
You can usually switch between these modes with a phone call.
3. Types of offset in the UK
| Type | Who it suits | How it works |
|---|---|---|
| Full offset | Savers with £10k+ | 100 % of savings balance offsets interest daily. |
| Partial / 95 % offset | Smaller deposit borrowers | Lender offsets a set %; rate is lower than full offset. |
| Family / “parental assist” offset | First-time buyers | Relative parks savings in a linked pot as collateral; they keep the interest benefit, buyer gets higher LTV. |
| Current-account mortgage (CAM) | Self-employed & freelancers | Combines mortgage, salary in/out, and spending in one big overdraft-style account. |
4. Pros & Cons
 Pros |
 Cons |
|---|---|
| Pay no tax on “interest saved” — valuable for 40 %/45 % taxpayers | Mortgage rates 0.20–0.50 pp higher than best tracker/fixed deals |
| Flexible: withdraw savings any time | If you empty the pot, interest bill jumps |
| Overpayments without fees | Some lenders offer fewer fix/term options |
| Shorten term without locking cash into the loan | Harder to compare true cost vs. traditional deals |
5. Is it right for you?
| Good fit if… | Think twice if… |
|---|---|
| You hold steady savings/buffer (£10k+) | You live pay-cheque-to-pay-cheque |
| You’re a higher-rate taxpayer | You’re basic-rate and savings sit in an ISA earning 5 %+ |
| Irregular or bonus-heavy income | You need the absolute lowest rate today |
| Family willing to help with “offset deposit” | You’d be tempted to splurge the offset pot |
6. Key lenders & deal quirks (2025 snapshot)
- NatWest & First Direct: classic full offsets with 2- & 5-year fixes.
- Yorkshire BS: partial 90 % offset option.
- Family Building Society: “family offset” up to 95 % LTV when parents lodge savings.
- Viridian CAM: rolling tracker current-account mortgage (popular with contractors).
7. Worked comparison — 25-year £300k loan
| Scenario | Rate | Savings on hand | Interest paid over term | Term length |
|---|---|---|---|---|
| Standard fix | 4.90 % | £0 | £212,000 | 25 yrs |
| Offset (keep payment) | 5.10 % | £30,000 | £163,000 | 20 yrs 3 m |
| Offset (lower payment) | 5.10 % | £30,000 | £212,000 | 25 yrs (but £160/m lower payment) |
Even after the 0.20 pp higher rate, the “keep payment” offset route saves ≈ £49k and shaves almost 5 years off.
8. FAQs
Can I link multiple savings accounts?
Yes — many lenders let you offset several pots (joint or single names).
Do ISAs count?
Cash ISAs generally cannot be linked; you’d need to move funds to the offset saver.
What happens if I switch lender later?
Savings balance returns to you on completion day; new lender must offer offset to keep the setup going.
Early-repayment charges?
Same as regular fixes/trackers — check the Key Facts. Overpayments via the offset pot don’t trigger ERCs.
9. Next-step checklist
- Calculate average savings balance over a year.
- Use an online offset calculator to test interest saved vs. higher rate.
- Pull latest credit report & income docs.
- Speak with a whole-of-market broker who places offset deals daily.
- Compare offset vs. best-buy fixes/tracker for true cost.
Need tailored advice?
We’ll help you weigh the interest saved against the rate premium and match you with lenders that fit your savings pattern.