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Offset mortgage rates cheaper than standard fixes

Written by: Samantha Partington
Offset mortgage interest rates have dropped below two per cent as product numbers dwindle, making them cheaper than the average standard two and five-year fixed rate deals on the market.

Moneyfacts’ analysis reveals that although the number of available offset mortgage deals has dropped from 210 to 95 in a year, those lenders that continue to offer offset options have cut rates.

The average two-year fixed offset rate in April has dropped from 2.10 per cent to 1.90 per cent year-on-year and the average five-year fixed offset rate has fallen from 2.35 per cent to 1.96 per cent.

Meanwhile the average two and five-year fixed rates on standard mortgage deals are 2.11 per cent and 2.37 per cent respectively.

Historically, offset mortgage rates have been much higher than standard mortgage deals.

Offset mortgages allow a borrower to link their mortgage and their savings together, reducing the interest paid on their mortgage while still maintaining access to their savings pot.

This allows borrowers to pay off a mortgage quicker, reducing the total amount repaid overall.

Eleanor Williams, finance expert at, said: “Once on the property ladder, the main aim for many is to pay their mortgage balance off as quickly as possible. As a general rule, if a borrower’s mortgage rate is higher than the interest rate they are currently earning on their savings, then they may find they can save more by repaying their mortgage than they would receive in savings interest, particularly if they pay tax on the latter.”

The best instant access savings rate available is currently 1.20 per cent. To earn a rate of interest equivalent to the average two-year fixed rate offset mortgage of 1.90 per cent you would have to take out a fixed bond and lock your money away for five years.

The withdrawal of offset mortgage deals follows the trend seen across the wider mortgage market in recent weeks.

Hundreds of mortgages have been taken off the shelves as banks struggle with less staff to process applications, huge demand for mortgage payment holidays and no way of carrying out physical property valuations on high loan to value cases.

According to Moneyfacts, the reduction in offset mortgage deals is also a reflection of the poor state of the savings market. Attracting cash from savers is a low priority for providers and this is likely to continue due to the Term Funding Scheme for SMEs, the data analyst added.

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