In this brief blog, we are going to discuss the first direct offset mortgage.

What is the First direct offset mortgage?

A First direct offset mortgage is a mortgage where your savings are used to reduce the amount of interest you pay on your mortgage.

A First direct offset mortgage works by linking your First direct savings account to your First direct offset mortgage.

How does an offset mortgage work?

Interest is charged on the difference between your mortgage capital balance and the amount in the offset savings account. The more you deposit in a savings account, the less interest you have to pay. You can withdraw the funds from your savings account at any time as there is no lock-in period. Withdrawing money from your offset savings account will, of course, increase your interest payments.

The funds in the linked account can be deposited by friends of family.

A First direct offset mortgage can help you;

  • Pay your mortgage off quicker
  • Reduce your monthly payments now or in the future

Is a First direct offset mortgage right for you?

It is worth getting mortgage advice before choosing a First direct offset mortgage from a qualified digital mortgage broker.

Is an offset mortgage worth it?

Yes, an offset mortgage may be worth it if you are able to put enough savings into your linked savings account and essentially reduce how much interest you pay on your mortgage and how quickly you pay off your mortgage.

Can you still get offset mortgages?

Yes, you can still get offset mortgages. Some UK mortgage lenders still offer these types of mortgages.

Can you withdraw money from an offset account?

Yes, you can withdraw money from an offset account but it will likely increase the interest you are paying on your mortgage. This depends on when you withdraw the money and if you put it back into the account.

The key features of the first direct mortgage are

You can use your savings and current account balance to reduce your interest repayments.

The first direct offset mortgage takes into account any amount that is in your savings account or current account with First direct.

This means if you have a mortgage balance of £200,000, £10,000 in your current account  and £50,000 in your savings account you will only be charged interest on a mortgage balance of £140,000

As a prospective borrower, you must have a minimum sole salary of £50,000 or joint salary of £75,000 (or less if one of you earns £50,000 or more). 

You cannot get this mortgage for business purposes or Buy to Let

With the first direct offset mortgage you can only borrow a minimum of £30,000 over between 2 and 25 years

This is an interest-only mortgage this means you will need to have a suitable capital repayment vehicle which is approved by first direct. This could be an endowment policy, an investment vehicle, other property etc

You can choose to make overpayments on the mortgage whenever you want to. You can do this regularly each year, each month or you can make lump sum overpayments. Early Repayment Charges may apply so check first.

You may be able to borrow back any capital which you have paid back but this may increase the amount of interest you are charged and potentially increase your mortgage term. You must also ensure you can pay any money you redraw from your mortgage, by the end of the mortgage term.

Your first direct offset mortgage may have a fixed or tracker rate period of 2 years.

The maximum mortgage you can get with the first direct offset mortgage is £1m.

The first direct offset mortgage cannot be ported.

How much you may benefit from a tax point of view will depend heavily on your individual circumstances.

Any borrowing linked to your Offset Mortgage will be secured against your property.

Use the first direct offset mortgage calculator

You can use the first direct offset mortgage calculator if you want to get an idea of how much your first direct offset mortgage could potentially cost you each month.

You will simply need to input the mortgage amount, the mortgage term, the mortgage interest and the savings balance.

You can find the first direct offset mortgage calculator here.

How to apply for the first direct offset mortgage

Telephone

If you are a new mortgage customer you can apply for the first direct offset mortgage using the telephone.

When you call you will need your income and expenditure details to hand in order to go through a mortgage fact find over the phone. You will then be given a mortgage or agreement in principle over the phone and the details will be emailed over to you.

To make a full mortgage application you will need some supporting mortgage documents.  A list of required mortgage documents will be sent to you via email.

Once you have sent these documents a telephone appointment will be set up for you to make a full mortgage application.

The number to call to start your mortgage application is 0800 48 24 48.

Existing account holders can call this number:03 456 100 103.

You will receive mortgage advice when applying via the phone.

Online

You can also make your first direct offset mortgage application online.

You can also apply for your first direct offset mortgage by making an application through the website. 

When you apply via the website you won’t get mortgage advice. This means that the suitability of the mortgage you choose won’t be accessed and you won’t have the regulatory protections provided for those who apply via phone.

During your online mortgage application, you will be required to provide information on all the money which you earn and on your monthly expenses.

Using a mortgage broker

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief guide, we discussed the first direct offset mortgage. If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.