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        Updated: April 19, 2023

        Current Account Mortgages

        Wondering how current account mortgages work and whether it’s right for you? Find out with our in-depth guide.

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        We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects. Ask us a question and we'll get the best expert to help.

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        Pete Mugleston

        Author: Pete Mugleston - Mortgage Expert, MD

        Updated: June 07, 2022

        The key to getting the right mortgage is finding the best deal for your circumstances. And sometimes that can involve sourcing niche products like a current account mortgage that allows you to offset your home loan against the balance of one or more current accounts.

        If you’ve heard about current account mortgages but don’t really know how they work or whether one is right for you, you’ve come to the right place. In this article we’ll outline everything you need to know and how a broker can help you decide if it’s the right option.

        What is a current account mortgage?

        This type of home loan combines a mortgage balance and current account held with the same provider to help reduce the overall costs involved. There are also options to include loan and credit card balances in some circumstances.

        It’s not for everyone but if you typically earn more than you spend each month, it is an avenue worth exploring.

        With a current account mortgage, you will have a single balance across the two products so, for example, if you have a £180,000 mortgage and £7,000 in your current account, your balance will show as overdrawn by £173,000 (your mortgage balance minus the cash in the current account).

        Your account balance will be in debit, but your mortgage interest will be calculated daily on £173,000 rather than the £180,000 you borrowed.

        This doesn’t affect your ability to access your monthly income. The amount of interest will change based on your current account balance and fluctuates as money goes in and out.

        It is possible to apply with an average current account balance of just £100 but this is not recommended as the savings would be negligible and other forms of borrowing are preferable. Typically, there is no upper limit for your current account balance.

        You will still need to make monthly payments against the capital amount, but the cash held in your account will reduce the amount of interest you pay overall and allow you to clear the balance sooner.

        How much you could save

        You can work out how much you could save in interest payments with a current account offset against your mortgage balance by using our calculator below.

        calculator icon

        Offset Mortgage Calculator

        This calculator shows you how your mortgage payments could look if you choose an offset mortgage and how much you could potentially save with this product type.

        The total amount you're borrowing
        £
        3.5% used for example purposes but the rate you get may vary
        %
        25 years is average but term lengths can vary
        years
        Enter an amount in pound sterling
        £
        Savings amount must be less than the loan amount

        Without offset savings:

        Monthly repayments:

        Total cost:

        With offset savings:

        Monthly repayments:

        Total cost:

        Now that you have a rough idea of how much you could save on interest by offsetting your mortgage, you should speak to a specialist broker for bespoke advice about offset mortgages and access to the best deals that you qualify for.

        Get Started with a Broker

        Maximise your chance of approval with specialist advice from an expert in Offset Mortgages.

        Eligibility and criteria

        Not many providers offer current account mortgages so lending criteria is quite strict. Factors affecting applications include:

        • Deposit amount – Typically you will need a deposit of at least 25% of the property value, although some lenders will agree to a deposit of 20%. If you have a large deposit but expect to carry out renovations within a few years of taking out your mortgage, you may be best advised to hold some of it back and take out a current account mortgage to eliminate the need to remortgage and access the funds when they are needed. A broker will help you calculate all the options and keep your borrowing costs to a minimum.
        • Income and expenses– Some lenders include a minimum income threshold. Even those that don’t will carry out a thorough examination of your income and outgoings. This type of mortgage can be beneficial if you are a freelancer or contractor who has irregular income but generally leaves large amounts of money sitting in a current account.
        • Credit file – Lenders see current account mortgages as a high risk product because they rely on you having a tight rein on your finances. A Bad credit record may mean you need to look at alternative mortgage types. Minor credit issues or bad credit from a long while back will be less of an issue and a broker with a good working relationship with lenders may be able to speak on your behalf to find an appropriate solution.
        • Age – If you will be borrowing into retirement, lenders will be concerned that your income will drop significantly and the ratio between income and expense will change. Professional advice is crucial to ensure you approach the right lender.
        • Property type – Few providers will consider a non-standard construction property so your borrowing options will be very limited if buying a property that is not made from bricks and mortar.

        Things to consider

        There are several things to take into consideration when working out whether a current account mortgage is right for you, such as:

        • Interest rates are usually higher than those on standard mortgages so you will only reduce the long term cost of borrowing if you can keep a healthy balance in your current account.
        • Most providers will insist on having your monthly income paid into the account.
        • You retain easy access to the money in your account but using it will lessen the long term benefits of borrowing in this way.
        • You will need to be comfortable with constantly seeing a negative balance on your current account.
        • Some people are better off transferring money from a poorly performing savings account into an offset mortgage linked to their current account. If you are considering this, it is highly recommended that you speak to a financial advisor before making your decision.
        • Lenders may cap the amount you can put into the account to offset your mortgage so be sure to check the contract thoroughly before signing.
        • You may be required to keep a minimum balance in your linked current account.
        • If you want to link your mortgage to a business current account, everyone named on the account will need to be a signatory to the mortgage.

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        How a broker can help with a current account mortgage

        A broker will evaluate your circumstances to help you determine whether this is the right mortgage for you. If a current account mortgage is the cheapest way for you to borrow, they will find the best deal.

        The brokers we work with have whole of market access and will compare all deals available to ensure you get the one best suited to your situation now and in the future.

        If you get in touch, we’ll arrange for an advisor with experience arranging these types of mortgages to contact you directly for a free, no obligation discussion.

        Which providers offer this type of mortgage?

        Only a limited number of providers offer current account mortgages. High street lenders including Natwest and Barclays offer them subject to availability with rates starting from around 1.97%, but most providers are smaller, specialist lenders.

        You are advised not to apply directly to lenders as advisors employed by any particular bank can only advise on their own products so you will not benefit from market comparison. As rates are higher, going with the wrong lender could be a costly mistake as you could end up paying significantly more over the term of your loan.

        Mortgage reserve account

        Some mortgage current accounts come with a mortgage reserve account. This is essentially an additional aspect of the loan which is set aside in an overdraft.

        This means you can borrow money for home improvements when you take out your home loan which can be set aside for when you need it. With a mortgage reserve account, you will not have to remortgage or apply for a secured loan when the funds are required.

        You won’t pay any interest on your reserve account balance until you use it, but the lender will take out a charge against your property for its maximum amount.

        How do you pay it off?

        The interest paid is usually calculated on an interest only basis. Typically, you can make payments to reduce the balance of your reserve account and cut your overall borrowing costs at any time. With that said, there are sometimes limits to overpayment amounts so make sure you fully understand how the reserve account works before entering into the agreement.

        Your reserve account will need to be settled in full when the loan term ends.

        Get matched with a specialist current account mortgage advisor

        Given the right set of circumstances, a current account mortgage could save you thousands over the course of your loan term. Get it wrong, however, and it could cost you thousands. This is a niche form of borrowing that demands expert advice.

        Our broker matching service will pair you with a broker who has deep knowledge of the UK mortgage market and each providers’ lending criteria. They will calculate the best deal for you and help secure it by guiding you through the application process and acting as your advocate with lenders.

        Call now on 0808 189 0463 or enquire online to arrange a free, no-obligation chat.

        Ask A Quick Question

        We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects. Ask us a question and we'll get the best expert to help.

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        Pete Mugleston

        Pete Mugleston

        Mortgage Expert, MD

        About the author

        Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

        Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.