Offset mortgages - our guide

One Offset savings account is linked to your Offset mortgage to reduce the amount of mortgage interest you’re charged.

You still have to make your contractual mortgage payment each month, but we only charge interest on the difference between your Offset savings balance and the mortgage amount. The mortgage interest you save is called the Offset benefit.

One savings account
Keep your savings in one, easy to manage account linked to your mortgage. 

Easy access to your savings
Using Online Services, telephone banking, and ATMs. And you can set up Direct Debits and standing orders on your savings account. Your Offset savings account is an easy access account, so you can access your savings whenever you need to. The money in your Offset savings account won’t earn interest because it’s offsetting the interest payable on your mortgage 

You can apply to borrow more at the same rate
Up to the maximum Loan to Value and subject to our lending criteria at the time.

With a repayment Offset, you can use the Offset benefit to help reduce the mortgage term or your monthly mortgage payment, whichever suits you best.

You can switch how you use the Offset benefit whenever you like.

Repayment Offset – how it works:

• You always make the full contractual monthly mortgage payment of the interest + capital repayment.  
• You’re only charged interest on the difference between your Offset savings balance and the amount of your mortgage.  
• The saving you make is the Offset benefit.

With a Repayment Offset, you can use the Offset benefit to reduce the overall term of your mortgage or your monthly mortgage payment – and switch between the two.

Your mortgage = £100,000*

Your Offset savings balance = £20,000

We only charge you interest on £80,000*

The difference between your savings and the mortgage amount. 

*On a repayment mortgage, part of your monthly payment will always include some of the original amount borrowed (the capital)

Any Offset benefit reduces the outstanding capital balance which in turn reduces the amount of mortgage interest you pay overall. This shortens the time it takes to pay off the mortgage.

The difference to your mortgage term and overall cost will vary depending on how much money you put into your Offset savings account.

If you choose this option, your monthly mortgage payments are only recalculated following a significant change to your mortgage, for example, as a result of a rate change or a capital repayment.

At the end of each month, any Offset benefit automatically reduces the amount we collect by Direct Debit (you must pay by Direct Debit) by the same amount for the next monthly mortgage payment, or the month after that, depending on when the payment is due.

Mortgage payments made before the 7th of the month may result in the Offset benefit reducing your monthly payment a month later.

You’ll still pay your mortgage for the full term, but depending on how much money you have in your Offset savings account, you pay less mortgage interest each month.

With our Interest-only Offset mortgages there’s no minimum income requirement but you’ll need to demonstrate that you can afford an equivalent repayment mortgage.

With an Interest-only mortgage your monthly payments only cover the interest charged and none of the amount you originally borrowed. You will need to have an acceptable repayment plan in place to pay back the original amount borrowed at the end of the mortgage term.

Interest-only Offset

With an Offset mortgage, your savings offset the interest you pay on your mortgage. It’s simple to manage – one Offset savings account is linked to your Interest-only Offset mortgage. We’ll set up your Offset savings account as soon as your mortgage has completed.

Here's how it works: 

Your mortgage = £100,000*

Your Offset savings balance = £20,000

We only charge you interest on £80,000

The difference between your savings and the mortgage amount.

*On an Interest-only mortgage your monthly payments only cover the interest charges but none of the original amount you borrowed. This means your monthly payments will be lower than a repayment mortgage but you will still have to pay back the amount you borrowed at the end of the mortgage term.

At the end of each month, any Offset benefit is credited to the outstanding balance owed on your mortgage, thereby reducing the total amount payable by you at the end of your mortgage term. You’ll still pay your mortgage for the full term.

You must have a minimum of £300,000 or more in equity left in your property after the mortgage amount required has been taken into account, and the maximum Loan to Value* (LTV) you can apply for is 50%.

So if your property is worth £375,000, you could apply to borrow up to £75,000. This leaves the £300,000 minimum equity, and the LTV is equivalent to 20% of the property value.

*The LTV is the amount of the loan requested calculated as a percentage of the property value, eg if your property is worth £375,000 then 50% LTV would be £187,500. 

If your Offset mortgage is currently on a variable interest rate it’s subject to interest rate changes throughout its life. This means that your savings interest rate is also subject to the same changes.

As your Offset interest is added to the account on the 1st of the month and the Offset benefit is applied on the first of the following month this means that your monthly payment in the month your mortgage interest rate changes will be different to what you would normally expect.

If interest rates increase your mortgage payment will be higher the first month of the change. And your Offset benefit will rise the following month which will be reflected in your mortgage payments.

If interest rates decrease you’ll pay less for your mortgage in the first month of the change, and your Offset benefit will be higher until the following month as the rate change won’t affect the savings account until then. After this, your new payment will reflect the decreased interest rate on both the mortgage and Offset benefit.

If there’s an increase in the interest rate payable on your mortgage, your monthly payment may go up.

The money in your Offset savings account won’t earn interest because it’s offsetting the interest payable on your mortgage. But it also means that there’s no income tax liability on those savings.

Because we don’t pay interest on your Offset savings account, it doesn’t count towards your Personal Savings Allowance. For more about this, go to www.gov.uk and type ‘tax on savings interest’ in the search box.

Because you only pay back the interest during the term of your mortgage, you’ll still have to pay back the original amount you borrowed when the mortgage term has ended.

You’ll need to have an acceptable repayment plan in place and we’ll ask for evidence of this.

All repayment plans must be on the basis of current value rather than estimated future value, and include (but aren’t limited to):

• The sale of investments - 80% of the current value
• An endowment policy – 100% of the current statement value
• A pension lump sum:

12.5% of the current statement value of a defined contribution pension scheme, or 50% of the guaranteed lump sum due from a defined benefit pension scheme

• The sale of the mortgaged property, or another mortgage-free property you own:

50% of the current value of the property you’re mortgaging, or 60% of the current value of a second property.

We’re unable to give investment advice and would always recommend that you speak to a financial advisor for advice on how to set up an acceptable repayment plan.

We’ll open your Offset savings account as soon as your mortgage has completed.

You can add to it whenever you like – more money in your savings account means less interest to pay on your mortgage loan. And you can take money out of your Offset savings account whenever you like too.

There’s no minimum amount required, so you don’t have to save regularly.

When we open your Offset savings account, we won’t automatically transfer any Direct Debits, standing orders or funds into it from other accounts. You’ll need to do this yourself.

You can find all the information you need about how to use your account in the booklet we send you when we open the savings account for you. If you have any specific question about your Offset savings account, call us on 0800 121 8899.

If you have more money in your Offset savings account than you have on your Offset mortgage

You won’t receive any Offset benefit on the excess amount. You may wish to move some of your savings into an account that pays you interest.

If you have the same amount in your Offset savings account as the amount you owe on your mortgage

You’ll still need to make a capital repayment every month.

If you have no money in your Offset savings account

You won’t receive any Offset benefit. If this is the case, you may want to review your situation to make sure an Offset mortgage is still right for you.

Call us on 0800 121 8899 and we’ll be happy to help.

You can make overpayments on your Offset mortgage in a number of ways – small ad hoc overpayments, larger lump sum overpayments and regular overpayments (Early Repayment Charges may apply).

But remember, after you’ve made an overpayment into your mortgage account you won’t be able to access it again, so if you think you might need the money in future you might be better off saving it in your Offset savings account instead. That way, you’ll receive a greater Offset benefit and have access to the money whenever you need it.

To talk to us about making overpayments, call us on 0800 121 8899.

If you apply to transfer – or port – your Offset mortgage to another property, we’ll set up a new Offset mortgage and savings account for you when the purchase is complete.

What you’ll need to do:

• Let us know whether to cancel or transfer any existing standing orders and Direct Debits. We can’t do this without your permission.
• Transfer any money into the new Offset savings account. We can’t do this automatically for you.

If your mortgage is repaid, transferred to another property, or transferred to a non-Offset mortgage, we’ll transfer your original Offset savings account into an instant access account.

Our mortgage advisors will be able to take your individual circumstances into account and give you more information about how you could benefit from an Offset mortgage.

But generally, if you have some savings and like the idea of paying your mortgage off early, or paying less each month, an Offset could be right for you.

To find out more, call us on 0800 121 8899.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

All of the information given is subject to our lending criteria and the specific terms and conditions of your mortgage.