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What are the best fixed-rate offset mortgage options?

What types of fixed rate offset mortgages are available and are they the right choice for you?

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 21, 2022

Is a fixed rate offset mortgage right for you?

If you have cash savings and want to find a mortgage that will save you money in the long run, a fixed-rate offset mortgage may be right for you.

Offset mortgages can help you save money on your mortgage payments by linking your current and/or savings account(s) to reduce the balance lenders charge interest on, and a fixed-rate deal could help to keep your payments even lower.

If you’d like to get started right away, we can match you with an expert mortgage advisor who can offer you free, impartial advice tailored to your circumstances. Call us on 0808 189 2301 or make an enquiry to get stated.

What is a fixed-rate offset mortgage?

An offset mortgage is a simple way of allowing you to use your cash savings to reduce the amount of interest you will pay throughout the term while still being able to gain access to this cash if required.

Your lender will keep your mortgage and savings completely separate. The amount of savings acts as an over-payment to reduce the interest you pay each month, which allows you to clear your mortgage sooner than with a traditional mortgage.

How does a fixed-rate offset mortgage work?

If you take out an offset mortgage for £200,000 linked to a savings account with a cash balance of £25,000, the amount of interest you pay is based on the difference. In this example, that difference is £175,000.

In addition to being able to repay your mortgage sooner, you will also incur much less interest overall. Your cash balance is not locked in at any time and can be accessed if and when required.

However, using the example above, if you removed £5,000 from the cash balance, all future interest payments would be calculated using the revised balance of the two amounts. Therefore, the interest you pay will now be based of the £180,000 difference.

A fixed-rate offset mortgage, as the name implies, is an offset mortgage with a fixed rate of interest for a predetermined period of time.

What are the benefits of a fixed-rate offset mortgage?

The main benefit with a fixed rate offset mortgage is the flexibility it can offer for both paying less interest overall and overpaying each month in order to pay off the mortgage sooner.

For some higher rate taxpayers, offset mortgages can also be seen as quite tax efficient. Typically, savings accounts linked to offset mortgages don’t generate any real interest, therefore, no tax would be payable. Your savings are still working for you as they’re bringing down the interest payments for your mortgage.

For a fixed-rate offset mortgage, the main benefit is knowing how much your payments are going to be for a set period of time and protection from the uncertainty a variable rate can bring.

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Which is the best fixed-rate offset mortgage for me?

The best fixed-rate deal for you will entirely depend on your circumstances, and how long you’d like the deal to run for. As with traditional mortgages, you can get an offset mortgage on both a fixed or standard variable rate.

Most lenders will offer 2-year, 3-year, 5 year and 10-year fixed-rate offset mortgages. Some lenders may offer a fixed rate throughout the whole mortgage term. The best fixed-rate offset mortgage for you is really based on the peace of mind you’re looking for.

For example, a 10-year fixed rate would give you the assurance of knowing exactly what your payments are over this length of time, whereas a shorter term would be better if you want more flexibility.

Also, bear in mind that rates will vary for each fixed-rate deal according to your circumstances and the loan-to-value (LTV) ratio – having a larger deposit will typically mean a lower rate.

If you’re unsure what’s right for you, let us help you. The advisors we work with are well versed in the best fixed-rate offset mortgage deals available. Make an enquiry and we’ll match you with an advisor to speak with.

2-year fixed rate

This is a popular rate offered by many lenders, and while 2-year fixed rates tend to have a lower average interest rate, you will eventually move to their standard variable rate (SVR), and you may end up paying more overall.

Once you reach the end of your fixed term, you could decide to remortgage with another lender (or the same lender) in order to get another fixed-term deal, so a 2-year deal may be ideal if you want the flexibility to move.

The downside is that you will only be protected from potential increasing rates for those two years, so if you do switch, you may not be able to find a deal that matched your initial mortgage rate.

However, before committing to a large financial decision, it’s always best to speak with a mortgage advisor to see if this is a viable option for you.

Send us a message and we’ll match you to an expert shortly.

3-year fixed rate

3-year fixed rate deals have been growing in popularity (at the time of writing), with borrowers wanting longer than a 2-year deal to protect themselves against rising rates but without the commitment of a 5-year rate.

Early repayment fees are also typically lower. For example, for a 5-year fixed rate, a lender may charge you 5% of the original loan if you leave in the first year, compared to 2% of the original loan with a 3-year fixed deal.

5-year fixed rate

A longer deal may seem like an attractive option that can offer you more financial security against rising rates, though you will likely get a higher interest rates compared with a 2- or 3-year fixed rate, and a capped loan to value (LTV) ratio is also to be expected at some lenders.

A 5-year fixed rate can provide an extra level of security for not only you but also for the lender. This is because you’ll have to pay an early repayment charge (ERC) if you decide to leave the mortgage before the 5-year period. So, if there’s a possibility that you may have to leave early, you might want to consider your options.

That’s why it’s always a great idea to seek advice from a mortgage advisor. They’ll be able to go through the pros and cons of shorter versus longer fixed-rate offset mortgages or recommend another product altogether to suit your circumstances.

Make an enquiry to get started.

10-year fixed rate

Some lenders offer 10-year fixed-rates, and there are a number of potential advantages to fixing yourself in for a longer period. Your mortgage deal will not be affected by fluctuating house prices and you’ll beat any potential interest rate hikes for a decade.

You should also consider that the interest rates on a 10-year fixed offset mortgage will be higher than on a product with a shorter fixed rate period (at least initially). The small minority of lenders that offer 10-year fixed terms also cap the loan-to-value ratio (around 75% is standard), so expect high deposit requirements. You may also find yourself paying higher interest rates than you need to if interest rates fall.

The best rates will be more difficult to come by if you’re hoping to fix yourself in for 10 years due to the number of approachable lenders being fewer.

Under these circumstances, whole-of-market advice is worth its weight in gold. If there’s a favourable 10-year fixed offset mortgage deal that you qualify for, the brokers we work with will find it for you.

Can I get a fixed-rate flexible mortgage?

As the name suggests, flexible mortgages give borrowers more freedom through extra features such as the option to make overpayments (some may offer no early repayment charges), underpayments and possibly even take a payment holiday.

Some lenders will allow these things if your mortgage is offset against a savings account. Make an enquiry and the advisors we work with will introduce you to the offset mortgage providers best positioned to offer you a flexible deal.

Are offset mortgages always cheaper than traditional mortgages?

Not necessarily, in the long run. If you only have a relatively modest amount of savings and are able to access an attractive interest rate on a conventional mortgage, it may work out best overall to add these savings to your deposit and go down the traditional route.

It’s important to explore all the options available to you before reaching any final decisions. If you get in touch with us, we can arrange for a specialist to run through each type of mortgage with you and help you decide which is best for your own circumstances.

How much can I borrow on a fixed-rate offset mortgage?

Most lenders will use their in-house calculators to assess how much you can borrow for a fixed-interest offset mortgage. They will consider what you can afford based on your earnings and outgoings, your credit history and the amount of deposit you have available.

Each lender assesses affordability differently. As a broad outline, most lenders will offer 4 – 4.5x your salary as a mortgage, some will go up to 5x your salary and a few will go as high as 6x your income under special circumstances.

Some mortgage providers might offer you one of the higher salary multiples if you link a savings account with a specific amount of capital in it, as this can minimise the level of risk, although how much more you can borrow and the amount of savings you’ll need to have can vary across the lender spectrum.

How much deposit do I need for a fixed-rate offset mortgage?

The amount of deposit you require can vary with each lender and will depend upon a number of factors, broadly relating to the strength of your overall mortgage application and a specific lender’s appetite to lend money for an offset mortgage.

Most lenders will require a deposit of at least 15%, some will require only 10% and a few will only need as little as 5%, though this is usually only accepted in certain circumstances.

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Why you should speak to an offset mortgage broker

By speaking with the right mortgage broker, you’ll be able to find the best deals based on your circumstances. Whether you are looking for a bad credit mortgage, or you are applying for a self-employed mortgage or if you’re looking to borrow in your older years, we can match you with the right advisor.

All the experts we work with meet the following:

  • Have whole-of-market access
  • Have excellent relationships with offset mortgage lenders
  • Can offer bespoke advice on offset mortgages
  • Are Online Mortgage Advisor (OMA) accredited advisors
  • Have completed a 12 module LIBF accredited training course

In fact, we’re so committed to providing you with outstanding service that we train advisors in-house so they can deliver the best possible service to you.

Speak to an offset mortgage expert

If you have questions and want to speak to an expert for the right advice, call us today on 0808 189 2301 or make an enquiry.

We’ll then match you to the right advisor who can provide you with the right information for your needs. We don’t charge a fee and there’s absolutely no obligation to make a purchase or any marks on your credit rating.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Fixed Rate Offset Mortgages
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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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