An Extra 1.3 Million Brits Will Pay 40% Tax by 2014, but With an Offset Mortgage They Could Save £36,600

LEEDS, England, August 1, 2012 /PRNewswire/ --

There's a hint of good news on the horizon for the extra 1.3m people who will pay 40% income tax by 2014.  first direct has calculated that they could save nearly £36,600 each if they used the tax efficient benefits of an offset mortgage1.  

Projections from the Institute for Fiscal Studies (IFS) show, based on the recent changes to income tax thresholds and predicted wage inflation, 15% of UK tax payers, equal to 5 million people, will fall in to the 40% tax bracket by 2014.  That's an increase of 1.3 million people who'll pay higher tax over the next two years.

A 40% tax payer with an average £183,5322 mortgage and typical cash savings of £36,7063 could save £36,5701 in interest costs over the term of their mortgage with an offset versus a normal repayment style mortgage.  

Ian Bartholomew, Senior Mortgage Manager at first direct commented:

"Offset mortgages used to be seen as complicated and when they were launched in the 1990s, only 5% of Britons found themselves in the higher rate income tax bracket and able to benefit from the tax efficiency an offset mortgage offers.

"Since then a lot has changed; more people that ever sit in the 40% tax bracket; instant access savings interest rates have fallen considerably; and the advantages of an offset are easier for homeowners to understand.  

"It's worth remembering that many people could be better off with an offset mortgage, even though the rewards are greater the higher the tax bracket.  Any mortgage holder with savings should bear in mind the benefits of offsetting."

The direct bank has created an offset mortgage calculator and overpayment calculator to illustrate both possible saving and reduction of mortgage term with and offset mortgage and results can be tailored to the individual's personal situation.

Notes to Editors

1 Example uses a 25 year first direct's 75% LTV Base Rate Tracker Offset at 3.49% above base (currently 3.99%) with £0 fees and is based on an average 40% tax payer with a £183,532 mortgage and £36,706 savings.  first direct has found that offset mortgage holders usually hold 20% of their mortgage balance in savings.  Assumes the Base Rate remains unchanged over the term of the mortgage.

2 Average mortgage size for a 40% tax payer according to the CACI based on figures from February 2012.

3 first direct has found that people usually hold 20% of their mortgage balance in savings with an offset

Bank of England instant access savings account data - http://www.bankofengland.co.uk/boeapps/iadb/index.asp?Travel=NIxIRx&levels=1&XNotes=Y&C=EC1&XNotes2=Y&Nodes=X40727X40728X40754X40755X45786X40759X40783&SectionRequired=I&HideNums=-1&ExtraInfo=true&G0Xtop.x=12&G0Xtop.y=16

IFS - Budgets

http://www.ifs.org.uk/budgets

IFS Tax and benefit changes, excluding those affecting mainly the very rich by Robert Joyce

http://www.ifs.org.uk/budgets/budget2012/budget2012robjoyce.pdf

IFS - Income tax table

http://www.ifs.org.uk/fiscalFacts/taxTables

For the latest updates, visit the first direct Newsroom or follow us on Twitter.

first direct facts

• Winner of the Which? Best Financial Provider award 3 years running

• Top financial institution in the Which? Customer Satisfaction Survey with an all-time high of 93%

• Ranked first in the Retail Banking Satisfaction Study by J D Power & Associates for two years running

• Recently (Feb 2012) received 90% customer satisfaction in a survey carried out by  MoneySavingExpert.com

first direct provides both telephone banking and online banking services to its 1.2m customers.  It offers a full range of personal banking products including its award winning Current Account and offset mortgages.