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Story for The Times - Mortgage borrower behaviour: Overpaying and offsetting

Journalist: George Nixon, The Times and The Sunday Times

ended 28. June 2023

Hello, I'm working on a story for The Times about mortgages and mitigation strategies for dealing with higher rates and am on the hunt for borrowers happy to talk about what they're doing.

Firstly, it sounds like overpaying is the big game in town, are your clients doing it - is anyone doing it in between loans - so taking out a smaller mortgage when their deal expires and settling the difference with cash - and would any be happy to chat?

Secondly, is anyone taking out an offset mortgage for the same reason? Perhaps you're a broker who has an offset yourself, would you be happy to talk, please? Would your clients?

Thanks, all the best!

10 responses from the Newspage community

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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
I've done quite a few offset deals this year where the clients have offset 100% of their mortgage interest and are now effectively paying 0%. I have a client who is a celebrity chef (not too famous) so he may want to talk if needed. Offset mortgages at the moment work for people with accessible savings, which can reduce the effective mortgage interest payable whilst retaining access to cash. Fixed-rate options are also available.
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Justin Moy
Managing Director at EHF Mortgages
We have seen a significant increase in the popularity of Offset Mortgages this year, as they can make a real difference to the actual interest cost of the mortgage. Clients like the ability to get a great return on their funds, reduce the mortgage cost, and still retain immediate access to their funds when needed. We could really do with some more competition in this market, to make the rates a little more competitive compared to the non-offset options.

Overpayments whilst you are in a very low fixed rate is not necessarily a good idea. You can get a much better return in a decent savings account in the short term, and then use that lump sum to make a reduction to the mortgage once the rate expires. This also gets you into good habits for regular saving and for earmarking any potential increase in mortgage payments for the future.
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Elliott Culley
Director at Switch Mortgage Finance
I speak with all my clients about the potential of overpaying. Anyone close to the next loan-to-value band below should consider overpaying to get into that band when it comes to a remortgage. It has the potential to save you money over the term as it will give you a lower interest rate.
I always let a client know its best to check whether it is better to put that money into savings or repay the mortgage, as it depends on the interest rates you can get.

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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
With rising interest rates, homeowners and landlords need to adapt their mortgage strategies. Two popular options are overpaying the mortgage or choosing an offset mortgage - the latter not very popular with BTLs. With borrowing rates at 6%, and the top easy-access savings at under 4%, you are better off making lumpsum or regular contributions to your mortgage. Offset mortgages are effective at reducing interest costs by 'offsetting' against your balance. For example, £50,000 in savings with a £200,000 mortgage means interest is calculated on £150,000 only. Combining these two strategies, borrowers with liquid savings can downsize their loan at the end of the term, by using the cash to settle the difference. Expert advice from a mortgage broker should always guide your decision-making. The downsides must also be considered, such as potential loss of liquidity and higher interest rates on offset mortgage products.
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Samuel Gee
Director at Manning Gee Investments Limited
A client called me on Friday and said "First of all I want to say thank you for putting me on a 5 year fix rate deal". She is an offset borrower who is saving like mad and expects that in 5 years her savings will match the offset amount, making her borrowing effectively interest free. A great result - at her 2% interest rate, she gets the advantage that while she's saving, her mortgage is more than manageable and at 5 years she has no stress of high interest rates. She may be happy to discuss with the media.
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Sabrina Hall
Mortgage Adviser & Protection Adviser at Kind Financial Services
Hi, yes I've been discussing this with a number of my clients. For many it's not an option however, I had a recent client who reduced their balance down from around £118,000 to £50,000 using savings and inheritance in order or offset the increase in the rates. They reduced the balance at the end of their deal so when they switched to the higher rate they didn't get the shock that they would have otherwise.

We did have to discuss the pros and cons of this as once that money has gone into the mortgage you would only be able to release it if we applied for a further advance and if the client's circumstances had changed then this might not be possible so it's important to leave some funds in a more accessible place also.
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Gareth Davies
Director at South Coast Mortgage Services
We've recently completed an offset case for a client. They were facing an increase to their monthly cost of over £800 as they were coming off a rate of 1.34% and facing a 4% increase. Since our last meeting they had come into some inheritance and as a result we discussed using these funds within an offset mortgage to reduce their ongoing monthly costs. By doing this we were able to reduce the cost to a level almost the same as they were paying for the last few years. The big benefit of offsetting the funds against overpaying the mortgage, is that the money will remain theirs, and as such, if they need to access it at any time in the future they are able to do so easily.
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Paul Welch
Founder and CEO at Largemortgageloans.com
An alternative to overpaying is using your savings with an offset mortgage. An offset mortgage is a type of home loan that allows you to link your mortgage with your savings and possibly other bank accounts (like a current account). The idea is that your savings are 'offset' against your mortgage debt, meaning you'll only pay interest on the difference between the two. For example, if you have a mortgage of £200,000, and you have savings of £20,000, with an offset mortgage, you'd only pay interest on £180,000 (£200,000 - £20,000) of the loan. Your savings are effectively reducing the amount of mortgage debt you're charged interest on.

However, it's important to understand that your savings aren't actually used to pay down the mortgage. They're just sitting alongside your mortgage, reducing the amount of interest you have to pay. You can still access these savings if needed, but the more you take out, the less benefit you get from the offset.
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John Lamerton
Small Business Author at Big Ideas... for Small Businesses
I've been aggressively overpaying my mortgage for the past five years, but now pay the bare minimum.

With almost two years remaining on a ten-year fixed rate of 2.74%, and interest-bearing savings accounts paying up to 5.95%, I'm putting every penny I can into savings instead of repaying the loan.

When my fixed-rate deal ends, I'll then use the savings to pay a lump sum off the mortgage.
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Austyn Johnson
Founder at Mortgages For Actors
We dont do many offset mortgages due to our clientele, but advising on overpaying is great! With terms needing to be extended to meet affordability, letting clients know they can knock years off their mortgage is a positive experience. When reviewing with our clients, we find that most of them overpay, even if its a small amount.