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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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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 4th July 2019* | Published: 26th April 2019

Is a fixed rate offset mortgage right for you?

We receive lots of enquiries asking about offset mortgages and, in particular fixed rate offset mortgages, usually from people with cash savings who are trying to determine whether this type of lending is right for them.

The good news is there are lots of different options available for you and, in the right circumstances a fixed rate offset mortgage may be a viable option. Once you’ve read through the information below, if you make an enquiry with us we can arrange for an offset mortgage expert to speak with you directly.

In this article we will cover:

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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 whilst 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?

An example will help put this into perspective: 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 so, in this example - £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 - £180,000.

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.

Which is the best fixed rate offset mortgage for me?

This really depends on what length of time you would feel comfortable fixing the rate 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 upon the peace of mind you’re looking for.

If a 10 year fixed rate offset mortgage would give you the assurance of knowing exactly what your payments are over this length of time then this is the best option for you. However, if you’d prefer not to be locked into a set rate for so long, a five year offset mortgage may be more prudent.

If you’re unsure what is right for you, let us help you. The advisors we work with are well versed in the best fixed rate offset mortgage deals available right now. Make an enquiry so we can arrange for someone to contact you directly.

Can I get a 5 year fixed offset mortgage?

Yes, potentially, and you will have a wider choice of lenders than you would if you were looking to fix yourself into an offset mortgage for 10 years (see the section above).

That said, you can still expect higher interest rates for the first couple of years than you would if you took out a 2 year fixed rate offset mortgage or a 3 year fixed rate offset mortgage, and a capped loan to value (LTV) ratio is also to be expected at some lenders.

If you’re unsure how long to fix yourself into an offset mortgage for, make an enquiry and the expert brokers we work with will provide bespoke advice based on your needs and circumstances, and introduce you to the right lender.

How do I get the best 5 year fixed offset mortgage?

Not all lenders offer fixed rate offset mortgages, so seeking specialist advice is important to ensure that you end up on the best rates.

Using online rates tables to trawl through 5 years fixed rate offset deals isn’t the best way to find the right mortgage for you. These tables are not tailored to your profile as a borrower, and they often give prominent placement to sponsored products.

This is why you should apply through a whole of market broker, like the ones we work with. Not only can they offer bespoke advice on these products, but they can also connect you to the lender best positioned to offer favourable on a 5 year fixed offset mortgage to a customer with your needs and circumstances - make an enquiry to speak with one of them today.

Can I get a 10 year fixed offset mortgage?

Possibly! Some lenders offer this, 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.

How do I get the best 10 year fixed offset mortgage?

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 whole-of-market 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, 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 fixed rate offset mortgage calculator to assess how much you can borrow for this type of mortgage and 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 4x your salary as a mortgage, some will go up to 5x your salary and a few will go as high as 6x salary 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 but broadly relates to the strength of your overall application and a specific lenders 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% in certain circumstances.

Why you should speak to an offset mortgage broker

At Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that:

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

Speak to an offset mortgage expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. They will compare fixed rate offset mortgages on your behalf and introduce you to the lender best positioned to offer you favourable rates on one.

We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 4th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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 info 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.

Find out more about Offset Mortgages

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