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Offset mortgages explained

With an offset mortgage, you can use the balance of your savings or current accounts to help you reduce the overall amount of interest you pay on your mortgage. Doing so can allow you to either reduce the overall term of your mortgage or reduce the amount you repay every month.

You can still access your savings whenever you need to, but your interest will be adjusted accordingly whilst you’re using your savings to offset your mortgage. So, for example, if you take out a £300,000 offset mortgage, and have £50,000 in savings to offset, you’d only have to pay mortgage interest on the £250,000 difference.

As you’re only being charged interest on a lower amount, you can then usually choose whether you want to reduce your monthly payments or keep your payments the same, and reduce the overall term of your mortgage. Note that because you’re paying less interest overall, you don’t usually earn any savings interest on your account balances on top of that.

Offset mortgages can be a good way to save money in the long run if you have a large sum of money in a savings account. They can also be a good choice if you want to reduce the length of time you have a mortgage for.

You should be aware that, because you’re being offered flexibility, offset mortgage interest rates are often higher than for other types of mortgages.

As with other types of mortgages, offset mortgages are available as a fixed rate offset mortgage or with variable rates. We can help you to find the best offset mortgage deals for your circumstances - just get in touch today to find out more.

Offset mortgage process

The first step is to do an offset mortgage comparison to find the best deals for your circumstances. We’ll help you to understand whether it’s the right type of mortgage for you, as well as help find you the best deals.

You should also think about whether you want to keep your monthly payments the same, which will reduce the overall term of your mortgage, or reduce your monthly payments to save cash in the short term. Some mortgage providers will allow you to change this throughout the term of your mortgage whilst others will ask you to make a decision at the start and stick to it.

Offset mortgage eligibility criteria

Eligibility criteria vary between lenders, but in general, they’ll look at whether you can afford your mortgage payments, both now and in the future. As well as looking at how much you earn, any mortgage provider will want proof of how much you spend so you should be prepared to provide bank statements as well as details of debts, like store cards, credit cards, loans and car finance agreements.

A savings offset mortgage can be particularly valuable for those who are on the higher rate of tax, as you don’t need to pay tax on any savings you offset. So if you have a significant sum of money saved, you could benefit from using some or all of those savings with an offset mortgage.

Family offset mortgages are also an option. Sometimes called a ‘parent offset mortgage’, this is where a family member (usually a parent) puts their savings into an account that’s linked to the child’s offset mortgage. This means that the child will have lower interest payments, meaning it might be easier for them to pass affordability checks.

Not sure whether you qualify for an offset mortgage, or if it’s the right option for you? Use offset mortgage calculator to see what offset mortgage rates you might get based on your personal finances.

Offset mortgage deals

Here at L&C Mortgages, we can help buyers to find the best offset mortgage deals. We have access to over 90 different lenders and we’ll scour the market to find the best deal for your circumstances.

As with any mortgage deal, the more equity you have, or the larger your deposit, the better the interest rate you should be able to get. And the more you have in savings to offset, the more you could benefit from an offset mortgage, particularly if you’re a higher rate taxpayer.

Offset mortgage repayment plan

When you take out an offset mortgage, you have two options: you can either use your savings to reduce your monthly payments, or keep the monthly payments the same and reduce the overall term of your mortgage. As with other types of mortgages, you’ll usually be able to make overpayments to reduce your mortgage term even more, although you should bear in mind that early repayment charges may apply.

Apply for an offset mortgage with L&C

If you’re looking for an offset mortgage, we’re here to give you a hand. Get in touch to do an offset mortgage comparison with us, or simply to check whether this is the right choice for you.

Our advisers will provide expert advice and a dedicated case manager will support you through your application. And the best part? Our service doesn’t cost a penny. Get in touch now to see if an offset mortgage could be right for you.

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Apply for an offset mortgage with L&C

At L&C, we’re experts in offset mortgages and can find the best deal on the market for you. See which deals you’re eligible for in real time by using our online Mortgage Finder.

If you’d like to talk through the various offset mortgage options, or check whether this type of mortgage is the best choice for you, our advisers are available to provide expert advice and a dedicated case manager will support you through your application.

Our service won’t cost you a penny either, so get in touch now and see if an offset mortgage could be right for you.

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Frequently asked questions

What is an offset mortgage?

With an offset mortgage you can link your savings to your mortgage in order to reduce the amount of interest you’re charged. You’ll continue to have access to your savings when you need them.

Is an offset mortgage worth it?

If you have a large amount of savings, an offset mortgage may cost you less than a standard mortgage. It’s important to crunch the numbers carefully, or get a broker to do it for you, so you can be certain you’ve found the best deal. Our offset mortgage calculator can help you work out if this is the right deal for you.

Can I offset mortgage interest against rental income?

Before April 2017, you could deduct interest on your mortgage payments from your rental income before you paid tax on it. However the percentage of your mortgage interest payments you can deduct has gradually been reduced, and as of April 2020, only basic rate (currently 20%) relief is available. You can read more in our guide on ‘Tax on Buy to Let properties’

How much do I need in savings for an offset mortgage?

You don’t necessarily need any savings to get started, although you’ll need to be able to put a deposit down as with any other mortgage. However, as offset mortgages usually offer more flexibility than a standard mortgage, the rates are often higher, so you need to be sure you’re going to use the offset features. The actual savings amount you’ll need to make it worthwhile will depend on your tax situation, what the interest rates are like on savings accounts and the mortgage rates you could get on standard mortgages. Our offset mortgage calculator can help you work this out.

How much deposit do I need for an offset mortgage?

There’s no set amount that you need to save to get an offset mortgage. However, as with any other type of mortgage, the bigger your deposit, or the more equity you have if you’re remortgaging, the more likely you are to get a good deal.