Potential of Offset Mortgages

The promotion of offset mortgages has so far focused primarily on the benefits of offsetting savings against the mortgage, to reduce the overall amount of interest paid. But their future appeal may be as much to reduce the cost of expensive unsecured debt, according to NOP Financial's article in the latest issue of the CML's journal, Housing Finance in the UK.

The article, based on data from NOP's Financial Research Survey, points out that many customers continue to hold additional savings accounts and borrowings separate to their current account or offset mortgage. This might be because customers are cautious about putting all their eggs in one basket, or it could be that they do not fully understand offsetting. The article concludes that this means that lenders need to continue educating customers about how offset products work. Lenders also potentially stand to benefit from a growth in the offset market if it represents a shift away from headline rates to increased brand loyalty and long-term advantages of the product.

Typically, people taking out offset mortgages are more likely than others to shop around for financial products. Only a third of offset mortgage holders state that, in general, they tend to stick to established products from tried and tested suppliers compared to over half of all mortgage holders. So at present, offset mortgage holders tend to be people who are at the forefront of taking out new financial products.

However, NOP Financial point out how quickly consumers have responded to the availability of 'flexible' mortgages, and it is suggested that offset products have the potential for widespread appeal. In Australia, for example, where offset mortgages are popular, many consumers have become adept at using their mortgage as a way of managing their wider finances. And, the article concludes, although the concept of offsetting has so far been pitched primarily at those who have savings to offset, there is another largely untapped group who would benefit from offset mortgages among people who make high use of unsecured borrowing.

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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