How an offset mortgage works
An offset mortgage links your savings to your mortgage. The lender charges interest only on the difference between the two. With a £200,000 mortgage and £40,000 in the linked account, you pay interest as though you owed £160,000 — but your savings stay yours, accessible at any time.
You don't earn interest on the savings. Instead you avoid paying mortgage interest, which is almost always the better side of the trade, because mortgage rates are higher than savings rates. The saving is calculated daily on most products, so money sitting in the account for a fortnight still counts for that fortnight.
Most lenders let you choose what the benefit does: reduce your monthly payment, or keep the payment the same and shorten the term. Keeping the payment and shortening the term saves substantially more interest overall, and is the option most offset borrowers take.
The tax advantage
This is the part that makes offsets genuinely compelling for some people and irrelevant for others. Interest you earn on savings can be taxable above your personal savings allowance. Interest you don't pay on a mortgage is not income, so there is nothing to tax.
For a higher-rate taxpayer, that changes the comparison materially. Offsetting against a mortgage at a given rate is equivalent, before tax, to a savings account paying meaningfully more than that rate — because the savings account's return would be taxed and the offset benefit isn't.
For a basic-rate taxpayer whose savings interest already falls inside the personal savings allowance, the advantage is smaller. And for anyone with limited savings, it may not exist at all: offset products usually price slightly above equivalent standard mortgages, and if your savings balance is small the higher rate can cost more than the offsetting saves.
Who offset mortgages suit
The clearest case is someone holding a substantial cash balance they want to keep accessible. Self-employed people setting aside money for a tax bill are the textbook example: the money has to be available in January, it does nothing useful meanwhile, and offsetting it against the mortgage costs nothing in flexibility.
The same logic applies to an emergency fund, money earmarked for a project not yet started, or a bonus you haven't decided what to do with. In every case the alternative isn't investing it — it's leaving it in a savings account earning less than the mortgage costs.
It's a poor fit if your savings are small relative to the mortgage, if you'd otherwise put the money into a tax-free wrapper with a better return, or if you'd rather simply overpay. Overpaying achieves a similar effect at a lower rate, with the important difference that you can't get the money back.
Rule of thumb
Offsetting tends to make sense once linked savings reach roughly 15–20% of the mortgage balance, though the exact point depends on the rate premium and your tax position.
Check the linked accounts
Some lenders allow multiple accounts, family members' savings and current accounts to be linked; others allow only one dedicated savings account.
Compare against overpaying
If you'll never need the money back, overpaying a cheaper standard mortgage usually beats an offset. If access matters, the offset earns its premium.
Common questions
What is an offset mortgage?
A mortgage linked to a savings account, where the lender charges interest only on the balance minus your savings. You don't earn interest on the savings, but you avoid paying the higher mortgage rate on the offset amount, and the money remains accessible.
Are offset mortgage rates higher?
Usually slightly, since it's a more flexible product. Whether the premium is worth paying depends on how much you can offset — with a small savings balance the higher rate can cost more than the offsetting saves.
Is an offset mortgage better than overpaying?
It depends on whether you might need the money. Overpaying a cheaper standard mortgage saves more interest but the money is gone unless the lender offers a borrow-back facility. An offset gives you the same effect while keeping the cash accessible, in exchange for a slightly higher rate.
Do I pay tax on offset savings?
No. You're not earning interest, you're avoiding paying it, so there's no income to tax. That makes offsetting relatively more attractive for higher-rate taxpayers whose savings interest would otherwise be taxed.
How current are the rates on this page?
We collect product data from the lenders we track from their published information and refresh it regularly, so the offset products above are the most recent we've seen from the lenders that offer them. Lenders can withdraw or reprice a deal at any time, sometimes with a few hours' notice, and a rate shown here is not an offer — availability depends on your circumstances, the property and the lender's own criteria.