First direct has launched a range of new offset mortgage rates.

The direct bank has also claimed that by renting out a spare room for five years homeowners with an offset mortgage could overpay their mortgage, with considerable benefits.

By using monthly rent to make mortgage overpayments the typical homeowner could shave 29 months off their mortgage and save over £1,028 in interest in just five years, first direct says.

The Government’s Rent a Room scheme means there are no tax implications for letting a furnished room in one’s home, up to the value of £4,250 per annum, so homeowners with space to spare could earn up to an extra £354 per month to put towards their mortgage costs.

First direct’s offset mortgage allows unlimited overpayments. By making monthly overpayments of £354 for 5 years on the direct bank’s 65% LTV three-year fixed rate offset mortgage, currently 3.49% with a £499 booking fee, homeowners would save £1,028 in interest payments and pay their mortgage off 29 months earlier.

Richard Tolchard, senior mortgage product manager at first direct, said: “As long as all necessary precautions have been taken