The MarketPlace at Bradford & Bingley, the UK’s largest mortgage broker, is again warning about the dangers of taking an offset mortgage.

The broker says although offset pricing has improved over the last 12 months, offsets, which have been marketed indiscriminately as the answer to many borrowers’ financial needs, are still likely to leave borrowers worse off than a traditional deal.

Those who manage their money effectively are likely to be better off opting for a combination of a market-leading mortgage and a high interest savings account, according to The MarketPlace.

Most borrowers do not have enough savings to make it work

David Bitner, head of product operations at The MarketPlace, comments: “The offset market has continued to proliferate over the last 12 months, with new and more competitive products arriving on the scene. However, these deals are still not right for the vast majority of borrowers who just do not have the level of savings to make them work. They need at least 20% of their total mortgage balance and in some cases as much as 40%."

“Lenders are promoting these products stating that borrowers will be financially better off using them. Whilst this is true if you are comparing the benefits against very expensive SVR’s, in most cases borrowers will be paying over the odds. They do provide flexibility and some products even allow borrowers to include current accounts, credit cards and loans. However, this convenient, flexible mortgage could end up costing more in the long-term."

“People believe that they need to take an offset to obtain this level of flexibility, but many mainstream deals offer much better rates with flexible features such as over-payments and payment holidays. Borrowers, especially if they are disciplined at looking around for the best deals, are much better off taking a market-leading product and going offset later in their mortgage life when they have the level of savings to make it work.”