A Guide to Offset Mortgages

If you want to know more about offset mortgages and how they work, in this article our expert team of independent mortgage advisers at PIL Southampton explains what they are and how they work.

What is an offset mortgage?

An offset mortgage links your savings to your mortgage, so that you’re only paying interest on the amount of mortgage that remains after your savings have been subtracted. For example, if your mortgage balance is £300,000 and you have £25,000 in savings, the interest you pay on your mortgage repayments will only apply to £275,000.

If your mortgage rate is higher than the interest rate you are earning on your savings, which it generally always will be, then leaving your savings in your offset mortgage account will be financially beneficial to you.

How do offset mortgages work?

You deposit your savings into a savings account provided by your mortgage lender, that they link to your mortgage. Any savings you hold in that linked account don’t earn you interest. Instead, your savings are used to reduce the amount of interest you pay on your mortgage.

The more savings you keep in the linked account, the less interest you pay on your mortgage. It works the other way round too – if you withdraw savings from the savings account linked to your offset mortgage, your mortgage repayments will go up.

Some lenders don’t have a maximum limit of savings you can link to your offset mortgage, which means that you won’t be charged any interest on your mortgage at all if your savings balance is 100% of your mortgage.

Are my savings held in the linked account protected?

Savings held in the linked account will only be protected up to the Financial Services Compensation Scheme (FSCS) limit. At the time of writing, this limit is currently £85,000, however this limit is currently under consultation and could rise to £110,000 from 1st December 2025.

As the FSCS-protected amount applies per person, per institution, it is important to keep these limits in mind when you are deciding how much money to save in each institution.

Are the monthly repayments cheaper with an offset mortgage?

They can be; it all depends on the interest rate you are paying and the amount of savings you are offsetting against the mortgage balance.

You will usually be given two options for your monthly repayments. One option is to only pay interest on the mortgage balance left after deducting your savings. The other option is to keep your monthly repayments the same every month, on the whole mortgage without deducting your savings balance, which means you will be overpaying your mortgage and shortening your mortgage term without increasing your monthly repayments.

How much money would I save with an offset mortgage?

It depends on your circumstances, and various variables like the interest rate you are paying and the level of savings you are linking to your offset mortgage. 

If you don’t have a lot of savings, some mortgage lenders let you link family or friends’ savings to your offset mortgage so it’s worth checking with your lender to see if that’s an option for you.

Can I still access my savings account during an offset mortgage?

Yes, you are likely to be able to keep full access to your savings and you have the freedom to add or withdraw funds, just like with a standard savings account. Each lender will have their own terms and conditions, regarding notice periods for withdrawals, for example, so make sure you know what they are before you commit.

Do bear in mind that the lower the savings balance you hold in the lender’s savings account linked to your offset mortgage the less benefit you will gain from having your savings offset against your mortgage. 

What are my offset mortgage options?

Not all lenders offer Offset mortgage products. Those that currently do include Barclays, Scottish Widows, Accord, Clydesdale and Coventry Building Society.

Each have their own conditions, for example Barclays allows you to link your account to up to 12 accounts including cash ISAs, current accounts, and savings accounts. 

Other lenders, like Accord, only allow you to link your savings to one account. A mortgage adviser like Southampton PIL is familiar with the products available in the marketplace and can help you to find the right mortgage product for you.

Offset mortgage rates

It depends on the provider, your credit history and your loan to value (LTV) ratio but interest rates for offset mortgages tend to be a little higher than those on standard repayment mortgages. However, it is often the case that paying interest on a lower balance, due to not paying interest on the savings that you have linked to your offset mortgage, more than makes up for the higher interest rate.

Before you go ahead with an offset mortgage, you should compare how much you would save through an offset mortgage compared to keeping your savings in a high-interest savings account and choosing a standard mortgage with a lower interest rate than an offset mortgage.

What are the pros and cons of offset mortgages?

Advantages

• Paying less overall interest on your mortgage debt means that you can either make smaller monthly repayments or finish repaying your mortgage earlier. 
• You still have the flexibility of accessing your savings if you need to, and some offset mortgages give you the option to link up more than one savings account and even your current account too. 
• Higher rate taxpayers might find an offset mortgage more tax efficient as tax is not applicable to savings held in a linked savings account.

Disadvantages

• If your savings balance is fairly small, you may not see the benefits of an offset mortgage.
• You’re not earning interest on your savings.
• Depending on the offset mortgage rate, it may be more beneficial to take out a standard mortgage and overpay the mortgage with your savings instead.
• Interest rates can be higher with an offset mortgage than a standard repayment mortgage.
• If your mortgage lender requires you to keep a certain level of savings in your linked savings account, this could restrict your financial freedom if you would have liked to use those savings at some point during your mortgage term.
• Not all mortgage lenders offer offset mortgages, so you may have fewer options to choose from.
•  

How PIL Southampton can help you 

We have an independent team of experienced financial advisers who can talk you through all the mortgage options available to you. They will get to know you and your financial circumstances, and help you to work out your comparison calculations between linking your savings with an offset mortgage, or keeping your savings separate from your mortgage.

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.