Offset mortgages are not the most common way to borrow money to purchase a property but in the current economic climate, the advantages they offer make them worth consideration.

An offset mortgage is a loan which links your savings to your mortgage account, ‘offsetting’ the amount you have stashed away against the amount you borrow and only charging you interest on the difference.

For example, if you had a mortgage of £100,000 and savings of £20,000 you would only have to pay interest on £80,000 of borrowing. A good mortgage calculator would be able to show you the impact of this if you know the interest rate on your borrowing.

Offsetting money is not the same as putting down a bigger deposit on a mortgage because the savings remain accessible to the individual at all times and can be either added to or withdrawn whenever they choose.

The savings account must be held with the same bank that is providing the offset mortgage, but can still be run as two separate accounts.

More than one account can be used to offset against a mortgage; some lenders operate a maximum limit whereas others allow borrowers to use as many accounts as they wish to offset.

Any savings used will not earn interest, because the money is being used to prevent interest being added to the mortgage account.

Whilst this may sound like a major drawback, in the current economy this is not the disadvantage that it may initially seem to be.

Using a mortgage calculator, it is possible to demonstrate how much financially better off most people would be by offsetting savings compared to earning interest right now.

With the Bank of England holding the base rate at 0.5% and expected to do so for some time, rates on savings accounts remain pitifully low making it impossible to earn a decent return.

Any gain that is made is subject to tax, making it very difficult to earn a substantial profit at the moment.

By using the savings to prevent interest being accrued on a mortgage, the interest being saved is far greater than could potentially be earned and even better, it is interest saved not earned and there is no tax liability.

Undoubtedly one of the biggest benefits of an offset mortgage is flexibility and there is plenty of scope for borrowers to either increase the amount of interest they pay by withdrawing savings, or reduce it by increasing the amount they are offsetting.

Any borrower who increases the amount of money they have saved will benefit immediately as interest rates on offset mortgages are calculated on a daily basis. A mortgage calculator will be able to show the impact of a greater amount of savings.

Individuals who have little savings will find they are unfortunately not able to benefit from the advantages that an offset mortgage provides, but anyone with a significant amount of money set aside, or with plans to create a nest egg, may find that it is worth taking a more creative approach to borrowing money to buy their home.

Offset mortgages explained is a post from: The Thrifty Scot

Figures were released by the Council of Mortgage Lenders, which also revealed that compared to the second quarter of the year mortgage lending across the whole of the UK increased by 16 percent. The third quarter saw mortgage lending increase across the board, with increases to first time buyers, those remortgaging and home movers.

Whilst first time buyers have experienced a lot of difficulty when it comes to getting mortgage finance, with lenders demanding higher deposits and being more stringent with their lending criteria, mortgages to first time buyers in the third quarter are said to have increased by 7 percent, reflecting an increase of 4600 and up by 10 percent in terms of value compared to the second quarter.

Scotland also saw a very small improvement in terms of lending criteria, with first time buyers taking out loans for 80 percent of the value of the home compared to 79 percent for the previous quarter.

An official from the Council of Mortgage Lenders stated: “The mortgage market in Scotland is currently stable albeit at a low level. We anticipate growth is likely to remain slow going forward, although welcome developments, such as smaller deposits, have emerged and a Scottish mortgage indemnity scheme for new build properties is being introduced. The uncertain economic outlook and low levels of consumer confidence will likely result in a continuing constrained mortgage market in Scotland as in the UK in general.”

Scottish mortgage lending increases in third quarter is a post from: The Thrifty Scot

Officials from HSBC said that although not all of these homeowners were in negative equity as such, many were in a situation where they did not have enough equity in their homes to pay a 10 percent deposit on a new mortgage or home, pay stamp duty and deal with other moving costs.

First time buyers are said to have been affected particularly badly. Figures show that in 2007 the average deposit put down by first time buyers was 10 percent and with the average property price at that time being £160,000 this gave equity of £16,000. However, with prices since then having plummeted most of this equity has been wiped out, leaving first timers high and dry. There have also been regional variations that affect the level of negative equity that homeowners have found themselves in, as prices is some areas have tumbled far more quickly than in others.

An HSBC official said: “These findings highlight the fact that first-time buyers can no longer rely on rising house prices to provide them with the deposit they need for their second purchase. They need to save or make overpayments on their existing mortgage if they want to move up the housing ladder.”

Hundreds of thousands of homes in negative equity is a post from: The Thrifty Scot

The Association of Residential Letting Agents has now pointed out that the private rental sector is under immense strain due to continued soaring demand, with officials claiming that this sector is close to reaching capacity. The number of ARLA’s members who are now reporting that the number of tenants is by far outstripping the number of properties has increased to the highest level since records began.

Around three quarters of ARLA members are said to be experiencing a situations where there are more people demanding rental properties than there are actual rental homes. London and the South East are said to have experienced a particularly sharp increase in demand compared to supply. The period for which tenants are remaining in their rental homes has also reached record highs of nineteen months.

There are concerns that many people who are renting homes may find it difficult or impossible to get onto the property ladder themselves due to continued difficulties in the mortgage market. There are further concerns that the government is doing little to ensure that there is a good stock of quality housing available for those having to rent.

Tim Hyatt, president of ARLA, said: “The UK cannot rely on the rental sector to support the housing market in perpetuity. The reality is that there is a finite amount of rental property and unless both housing supply and mortgage availability improves then renters will find that their options in the market are reduced.”

Rental sector struggles with high demand is a post from: The Thrifty Scot

The Bank of England has recently released data showing that the number of mortgage approvals has increased for the third month in a row, with approvals now standing at 3 percent higher than in July of last year. This will have resulted in hopes that property sales will also increase but many believe that there are still many problems ahead when it comes to property sales.

HM Revenue and Customs has released data, which shows that so far this year property sales have been stagnating, even though July saw property sales increase to 79,000, which is said to be the highest figure so far this year. Despite this, property sales levels are still lower than they were a year ago. Many people will still struggle to get onto the property ladder despite the increase in mortgage approvals, such as first time buyers who are still likely to struggle to raise the level of deposits that lenders are demanding.

One industry official said that the property sales levels were still low compared to normal trends. He said: “With consumer confidence weak and the economic outlook currently looking pretty grim, we see little reason to change our view that modest falls in house prices are more likely than not over the coming months.”

Mortgage lending improves but property sales stagnate is a post from: The Thrifty Scot

A recent study has shown how young people these days expect to be considerably older than their parents were when they manage to get onto the property ladder for the first time. In the survey both young people and their parents were polled about their ages when it came to getting onto the property ladder, and the results revealed that the average age of parents when they had managed to get onto the property ladder was twenty three whereas their offspring expected to be twelve years older at around thirty five before they manage to get onto the property ladder.

The research was carried out by the Post Office and showed that in the 1960s parents who purchased homes were in their early twenties but today’s younger people will be in their mid-thirties. This group has been called the Peter Pan generation, because they will never be able to grow up like their parents and older adults did in terms of reaching life’s traditional milestones.

One Post Office official said: “Many would-be first-time buyers may have been put off trying to get onto the housing ladder by the size of deposits now needed. Some may be deterred by their perception of high mortgage repayments.”

First time buyer age could reach 35 is a post from: The Thrifty Scot

Officials believe that first time buyer interest is largely fuelling the increase in mortgage valuations. The number of valuations in April is said to have remained mainly flat. However, in May there was a 22 percent increase in mortgage valuations and compared to a year ago this was an increase of 26 percent. Many will see this as yet another sign of recovery in the UK property market, as it shows that there have been higher levels of interest from consumers.

First time buyers now make up 34 percent of property valuations according to the report. However, the boost is also said to have been fuelled to some degree by existing homeowners looking to move house. May saw an increase of around 11 percent compared to the previous month when it came to mortgage valuations for house movers.

A spokesperson for Connells said: “Housing market activity has resumed its slow and steady upwards trajectory, driven by an upturn at the lower end of the market. Many first-time buyers have been encouraged to enter the market by the uptick in the number of higher LTV products available recently. However, for the average first-time buyer, mortgage finance still presents a formidable challenge. The increasing variety of products is offset against comparatively high rates – alongside overly stringent criteria demanded by lenders.”

Mortgage valuations on the rise in May is a post from: The Thrifty Scot

In the three months to the end of March this year there were 9100 properties that were repossessed by lenders. This marked the first increase in a fairly long time, with repossession figures having fallen for five consecutive quarters prior to this. There was around a 15 percent increase on repossessions compared to the previous quarter, with officials concerned that consumers are once again starting to experience severe financial problems that affect their ability to keep up with repayments.

The CML has gone as far as to say that it expects 40,000 people or more to lose their homes over the course of this year. This is up from 36,300 in 2010 and officials believe that the situation could get worse. At present people are experiencing difficulties because of factors such as wages being frozen, the cost of living rocketing, higher taxes, and government cutbacks. However, many are getting temporary respite from the rock bottom base rate, which is helping to keep their repayments down. If the base rate increases over the coming months the number of people that lose their homes could increase even more.

An official from the CML said: ‘Looking ahead, the financial position of many households is likely to be stretched for some while, and some will inevitably find themselves in difficulty. Lenders have a range of options to nurse borrowers through temporary problems, but will clearly need to be mindful of the regulator’s concern that too much forbearance may be as bad as too little.’

Repossessions set to rise again is a post from: The Thrifty Scot

According to recent reports many banks are now favouring buy to let borrowers over first time buyers, because this is a group that present far fewer risks for a number of reasons. Buy to let investors have a proven credit history and record, they usually have a chunky deposit that they can put down on the mortgage, and they have experience when it comes to taking out and repaying mortgages.

More and more people are becoming interested in buy to let investments. This is partly due to the huge increase in demand for rented homes, which means that those buying homes to let will have no shortage of potential tenants queuing up for the properties. It is also because many people with money to invest do not want to earn the little to no returns that savings accounts offer, preferring to invest the cash in property where they can make decent returns.

One official said: ‘Lenders are making no secret of the fact that they would rather allocate the limited funds they do have to the lower risk option of buy-to-let loans, with deposits of 25-40%, than first-time buyers loans with 90% loan to values. As a result, the buy-to-let sector is recovering at a remarkable rate, as investors are drawn back by the need for a long-term, low-risk investment for their cash.’

Banks prefer buy to let borrowers to first time buyers is a post from: The Thrifty Scot

This has resulted in the average value of property coming onto the market in the private rented sector soaring from £401,400 to £447,900. The situation has come about as a result of many people with larger, more expensive homes being unable to sell their property and deciding instead to make money off the property by renting it out.

Many others are deciding to rent out their homes rather than selling them because of the costs involved with selling the home. The high demand for rented homes means that those deciding to rent out their properties can look forward to getting tenants far more easily than they might have in the past. Family sized homes in particular are now coming onto the market to rent as a result of difficulties being experienced in selling them.

One industry official said: ‘We believe that this increase in the overall average capital value of rental properties has been driven by different types of home being offered to let. Today’s housing climate and uncertainty around jobs and income means many people are choosing to let rather sell their home, causing an increase in the number of family-sized homes available to rent. While these changes do not necessarily mean individual properties are worth more money, they do indicate that there is increasing flexibility in terms of the types of property available to would-be tenants in the PRS.’

Bigger homes going up for rent is a post from: The Thrifty Scot