Family offset mortgages, launched a few years ago to help cash-strapped first-time buyers on to the property ladder, have failed to have the impact that was initially predicted.

One large mortgage lender – Woolwich – has stopped offering family offsets in recent months while mortgage brokers report that guarantor mortgages are proving more popular.

Family offsets are a variation of the standard offset mortgage that allow borrowers to set savings or amounts coming into their current account against their mortgage borrowings. They allow other family members or even friends of the borrower to inject funds into the arrangement.

Instead of earning a low rate of interest on their savings – and paying tax on the income – these family savers can in effect earn the higher rate being charged on the mortgage and escape tax. Most family offsets allow the family member handing over the cash to retain full control of their money, although some prevent funds being withdrawn if this would push the lender’s loan-to-value percentage over the acceptable level.

Extending the offset principle to other family members allows parents or grandparents, who may be at a stage in their lives when they have funds to spare, to help their offspring at a time when cash is short.

But Woolwich, which began offering family offsets in 2001, pulled out last August having only signed up just over 1,000 customers.

“It sounded a good idea at the time because it was a way of using the family money in a tax-efficient way,” it says. “But it did not prove as popular as we thought it would. It was too much of a cultural shift. Asking your mum for funds was a step too far.”

“Family offset mortgages have not taken off,” says Melanie Bien, associate director at Savills Private Finance. “It is a shame given that first-time buyers are struggling so much. Maybe they are not being explained properly. People are not coming in to ask about them.”

But the industry has not written off family offset mortgages completely and some lenders are launching new ones. Yorkshire Building Society launched its Offset Plus mortgage in September to complement its existing range of fixed and variable mortgages. Offset Plus allows up to two people – family members and friends – to make contributions to the account in addition to the borrower.

“It won’t be a huge seller but we are offering it for a niche market because that is what members want,” Yorkshire says.

The family offset mortgage complements Yorkshire’s existing range of two and five-year fixed mortgages both charging interest at 4.89 per cent and bank base rate trackers which charge 0.45 per cent above base and a fee-free option charging 0.75 per cent.

Newcastle Building Society says family offsets make up “a fair percentage” of total offset mortgage sales, which themselves amounted to a quarter of all mortgages that it sold last year.

Newcastle offers family offset options on its two-year 4.75 per cent fixed rate mortgage and a tracker at 0.5 per cent above base rate. Newcastle sets a maximum loan-to-value figure of 85 per cent and requires any family contribution to the 15 per cent deposit to remain in place to maintain this percentage.

A more popular way for families to help the next generation buy a property is for the parent to act as guarantor for any shortfall in what can be borrowed against the young person’s income. Many building societies will allow this on mortgages that are not explicitly marketed as such, says Bien.

Family offsets may not have set the mortgage world alight but the traditional offset – where the borrower sets his or her funds against the mortgage borrowing – have been growing in popularity since they were first launched in 1994.

“More clients are asking for them,” says Bien. “Rates are getting better. They were high initially because you were paying a premium for the flexibility. There should be no reason why there cannot be an offset element in every mortgage. You should be able to bring together all your finances to offset your mortgage debt.”

But while offsets may have become cheaper across the board, individually they are difficult to compare with conventional mortgages because their cost will depend on the savings that have been put in and monthly salary inflows. “It can be difficult to see if you are getting a good deal,” warns Bien.