Martin Stewart, director at London Money, described offset mortgages as a “wonderful mortgage tool” and said he had never met an unhappy client with one.
However, he argued the offset market clearly needs more competition, suggesting that outside of Scottish Widows and Barclays, the offering is rather limited.
“I am not too sure why all lenders don’t have an offset product to offer. I suspect it is the age old ‘system’ issue, but that always seems a poor excuse.”
There has certainly been little change in the number – or pricing – of offset mortgages in recent times. According to financial information site Moneyfacts, last February borrowers could choose from 227 offset mortgages, with the average fixed rate at 2.49% and the average variable at 2.68%.
Today there are 231 deals to choose from, with the average variable rate unchanged and the average fixed rate dropping marginally to 2.23%.
David Sheppard, managing director of Perception Finance, said that some clients, like sole traders or those with large savings who need access to that cash, often see the benefit of paying a premium for an offset mortgage.
However, the lack of competition is a problem – one client recently had just three lenders to choose from at the loan-to-value he required, according to Sheppard.
He continued: “What surprises me is that some of the newer entrants to the market like Metro Bank and Virgin Money have not looked to explore this area of lending. They would seem ideally suited to do so especially as offset borrowers tend to be more loyal.”
New research from Accord Mortgages, which strengthened its offset proposition in December last year with the launch of five-year fixed rates suggests that brokers’ confidence around offset mortgages may also be a concern.
It revealed that nearly a quarter (23%) of brokers found explaining offset mortgages to clients challenging, with 12% admitting to having limited knowledge of this type of deal.
As a result, two in five brokers said they handled no more than two offset cases in the whole of last year, despite the obvious benefits they offer borrowers in the current low interest environment.
A massive 94% of brokers said that a better range of tools from lenders would help them explain the products better to borrowers.
David Robinson, national intermediary sales manager at Accord, said: “Offset mortgages present a golden opportunity for intermediaries who can expertly navigate clients to the best offset option, if appropriate, coupled with greater support from lenders.”