Harry Brennan Personal Account

Thank goodness I ignored those who told me to borrow to the eyeballs – my offset mortgage is a lifesaver

Two years ago borrowing was effectively free. I, and thousands like me, bought a house at a time when central interest rates were at their lowest on record – just 0.1pc. I could borrow hundreds of thousands of pounds and pay just 1.3pc in interest.

But today average mortgage costs are close to six times this. As summer came to an end, I faced a £600 jump in my monthly repayments – with a oneyear- old in tow and a partner yet to return to work. Others with bigger mortgages have had it far worse. This shift means the typical borrower coming to the end of their fixed mortgage deals between now and the end of 2026 will endure increases of almost 40pc, according to the Bank of England. Families are already feeling the strain, with 100,000 now behind on their mortgage bills, according to the banking trade body UK Finance – up 9pc compared to the three months to June.

I have managed to shield myself from the pain. In fact (he says smugly, rubbing his hands with self- satisfaction) my monthly payments have gone down. I am now paying close to £100 a month less than I otherwise would have been, had I not taken out an “offset” mortgage.

This savings-linked loan allows you to use surplus cash to balance the cost of your repayments. You sacrifice savings interest in return for a reduction in monthly payments or a shorter term. Just five or so lenders provide them. Someone with a £225,000 mortgage, over 35 years, could save £500 a month in interest with £20,000 in an offset account – assuming a rate of 5.7pc. Not only does it save on your monthly mortgage bill, but it slashes the tax on your savings. As savings rates have risen, and tax-free allowances become derisory, more people are being caught out. A higher-rate taxpayer can only earn £500 from their savings before they must pay tax on the interest.

I confess the only reason I have been able to make such savings is thanks to a windfall I received some years ago, part of which I used to purchase my home and the rest of which is now providing protection from high mortgage rates.

The more you have in your offset savings account the more your mortgage bill falls. Of course, most do not have spare cash lying around. But the point is about financial responsibility, restraint and control. My generation has grown accustomed to cheap debt, following ultra-low interest rates in the wake of the financial crisis. It is in contrast to those who experienced rates as high as 17pc in the late 1980s. This cheap borrowing has pushed up property prices out of kilter with wage inflation. Would-be homeowners have been encouraged to borrow as much as possible, overextending themselves on fixed-rate deals, on top of cheap car finance for luxury vehicles.

They now face a reckoning. It is clear that a resistance to the urge to put all your eggs in one basket would eventually be met with reward. I was advised to stretch my borrowing as far as possible – I’m incredibly glad I didn’t.

Now mortgage rates have reverted close to their long-term averages, and savings rates have improved with them, restoring our personal cash reserves and regaining control over our own money is the best way to unchain ourselves from the calamitous risks of overborrowing.

harry.brennan@telegraph.co.uk