Low-interest environment prompts high interest in offset mortgages

Sponsored Content By Ed Jones, head of lending, Channel Islands, Butterfield


CURRENT low interest rates mean it can be hard to make the most of your savings. The Bank of England’s announcement in early August that it held the base rate at 0.1% was no great surprise but was unwelcome news for those seeking good returns.

Any saver in 2021 will be longing for the heady days of December 2008, when the base rate was last above 2% . Current accounts, often aligned to the base rate, are no longer the desirable saving mechanism they once were, and savvy investors are exploring alternative strategies to preserve and make money.

One product that has seen a resulting jump in popularity is the ‘offset mortgage’, which links a mortgage to a savings account with the same lender. Offset mortgages use the balance of the savings account to lower the balance of the mortgage, thereby reducing the amount of interest paid on the mortgage.

This is especially attractive as many have built up cash savings by not spending as much as normal due to the pandemic-enforced lockdowns. Money that would, in normal times, have been spent on holidays, eating out or events and experiences, has instead been saved. EY’s ITEM Club reports that £30bn extra in cash was being banked by UK households during the summer months of 2020, a trend repeated in the Channel Islands.

Butterfield’s recently launched Lifestyle Mortgage functions as an offset mortgage and has been thoughtfully designed by lending specialists to reflect the needs of today’s professional Channel Islands resident looking to purchase or remortgage a property.

In fact, our full range of mortgages puts the customer’s needs first and is based on our in-depth understanding of the local market, having operated in the Channel Islands for more than four decades, in addition to Butterfield’s mortgage experience in Bermuda, the Cayman Islands and the UK.

Your savings working for you

So how does an offset mortgage work? Essentially, your savings, bonuses or dividends are used to reduce – or offset – the interest you pay on your mortgage, without you losing the ability to access your money whenever you wish.

For example, if you have a mortgage balance of £400,000 and savings of £100,000, you will only be charged interest on £300,000.

The advantage of this is that your savings are working harder, which is particularly beneficial in an environment when you may have more of them, and interest rates are low.

Total flexibility

In addition to interest saving, offset mortgages also put funds at instant disposal. If you wanted to undertake home improvements, buy a second home or make an investment, your funds would be immediately available.

For example, if you have a capital limit of £600,000, but have only drawn down £450,000, you have immediate access to £150,000.

Butterfield’s Lifestyle Mortgage offers the flexibility that suits the needs and compensation structure of the modern professional, as bonuses, dividends or commissions can immediately be put to work. There is also the benefit of no drawdown fees or early repayment charges, if you did want to repay ahead of schedule.

With the after-effects of the pandemic due to keep interest rates low for a while longer – the Bank of England has suggested no rise is forthcoming until 2022 at the earliest – savers are having to look at new ways to grow their wealth and achieve good returns. Against this backdrop, it is no surprise that an offset mortgage is an appealing option.

If your savings can be working harder for you, find out more about the Lifestyle Mortgage by visiting butterfieldgroup.com, or get in touch with the team directly to have a conversation at CIMortgages@butterfieldgroup.com or 843 300.

Disclaimer: Your property may be repossessed if you do not keep up with repayments on your mortgage. To apply you must be 18+ and resident in Guernsey or Jersey. All mortgages are subject to status and valuation.

Butterfield Bank (Jersey) Limited (BBJL) is regulated by the Jersey Financial Services Commission to conduct deposit- taking business under the Banking Business (Jersey) Law 1991 (as amended), and investment business, fund service business and money service business pursuant to the Financial Services (Jersey) Law 1998, (as amended). BBJL is registered under the Data Protection (Jersey) Law, 2018 and is registered with the Jersey Registrar of Companies for the purpose of the Companies (Jersey) Law 1991 (as amended). Registered office address: St. Paul’s Gate, New Street, St Helier, Jersey JE4 5PU. Company registration number 124784. BBJL is a participant in the Jersey Bank Depositors Compensation Scheme. The scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any five-year period. Full details of the scheme and banking groups covered are available on the States of Jersey website (gov.je/dcs) or on request. Terms and conditions can be obtained from our website and copies of the latest audited accounts are available on request. BBJL is a wholly-owned subsidiary of The Bank of N.T. Butterfield & Son Limited.

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