Last reviewed on 14th August 2023 by Martin Alexander (Mortgage Advisor)

With savings in the bank gaining little interest, offset buy to let mortgages can be a great way to make the most from your savings.

Tax relief changes also mean that existing landlords may benefit from having an offset buy to let mortgage. You can reduce your overall cost and as a property investor, it’s important to minimise your expenditure where possible. Having the right mortgage type is just one of many ways to do this.

What is an offset buy to let mortgage?

An offset buy to let mortgage allows you to use your savings to reduce the interest payable on your mortgage. You’ll also need to have a savings account with your mortgage lender so you’re able to do this.

As an example, if you have a mortgage of £150,000 and have £25,000 in savings, you’ll only pay interest on £125,000. With a regular mortgage, you’d pay interest on the entire £150,000. This can be a great way of reducing the interest you pay as a landlord.

If you have substantial savings, you could cut the cost of your mortgage payments right down to a minimum. On the other hand, if you don’t have a large savings account, an offset buy to let mortgage may not be viable.

Can I get an offset mortgage on an HMO?

It’s not currently possible to get an offset mortgage on an HMO, only regular buy to let properties will be sufficient for this mortgage type.

If you require a mortgage for an HMO, you can read our HMO mortgage guide here.

Are offset mortgages possible with limited companies?

Offset mortgages aren’t currently possible through limited companies and are only offered to individuals. This is because there aren’t any lenders that offer them. Nonetheless, it’s still possible to get a buy to let mortgage with a limited company.

Benefits of using an offset mortgage for buy to let

Key advantages of having an offset buy to let mortgage include:

• Reduce the amount of interest you pay
• Cheaper monthly mortgage payments
• Possibility to reduce your mortgage term
• Access your savings if needed
• It can be tax-efficient
• Make your savings work harder for you

While there are advantages, each borrower’s circumstances will vary. Please speak to an advisor before you commit to a mortgage.

Are there any drawbacks?

Possible drawbacks for an offset buy to let mortgage:

• You may need a larger deposit than usual (25% minimum)
• There are a limited number of lenders offering this product
• Not as much choice when compared to other mortgages
• Mortgage rates are typically higher than regular buy to let mortgages
• Repayments will increase if you withdraw savings
• Not possible for an HMO or limited companies

You may find that rather than using your savings to offset your mortgage interest, your savings may be better for your mortgage deposit. This is because larger deposits often secure favourable rates. Our advisors can calculate each deal for you to ensure you’re getting the very best deal.

What other types of buy to let mortgages are there?

An offset mortgage is just one type of buy to let mortgage. They’re not used as often by landlords, but this is mainly because the majority of lenders don’t yet offer them.

With so many options to choose from, the best mortgage for you may not be suitable for somebody else. That’s why it’s recommended that you speak to an expert that is able to assess your situation. We’ll then establish the right mortgage type for your buy to let investment.

Interest-only mortgages

Interest-only buy to let mortgages are very popular and can help to boost monthly cash flow. That being said, you’re never actually paying the mortgage balance and are simply repaying the interest on the loan. You’d then need to sell the house or have a repayment strategy to repay your lender at the end of the term.

Read more: How to use an interest-only mortgage for a buy let

Repayment mortgages

Repayment mortgages for buy to let are slightly less popular, but they also have their place in the market. For instance, you’d own the property outright at the end of your term which can be great for retirement. Nonetheless, your initial monthly payments will be higher than an interest-only mortgage, although your interest will reduce over time.

Learn more: Buy to let repayment mortgages explained

Offset buy to let mortgage rates

Mortgage rates are often higher than regular buy to let mortgages. This is because you’ll be able to save money by reducing your interest. As a result, lenders offer mortgages with slightly increased rates. Nonetheless, you should still be able to make a saving each month.

As mentioned, your savings account would need to be tied to your mortgage lender. It’s also likely that you won’t gain any interest on your savings while your funds are kept in the account. This is because your savings will instead be used to reduce the level of interest you pay on the loan.

Mortgage fees will typically be higher than average too. This is again due to the nature of the loan. Just because you’re able to offset your savings against your mortgage balance, it doesn’t mean to say it’s the most viable option available.

Nonetheless, you should be able to reduce the cost of your monthly payments or the length of your mortgage term. This can result in overall savings which is great news for any investor. To be sure, speak to our advisors who can calculate everything for you.

Specialist advice for landlords

Most offset buy to let mortgage lenders don’t advertise their products as widely as regular deals. As a result, it can be difficult for investors to find suitable lenders.

Our advisors have access to every UK buy to let lender and can quickly calculate which deals will save you the most money. Furthermore, we’ll be able to assess which type of buy to let mortgage will be the most suitable.

The most suitable mortgage type will depend on:

• Your investment goals
• The budget you have
• Your deposit amount
• The type of property you’re buying
• The value of your savings

You can start your application process or simply get some advice by making an enquiry. Our experts will then call you back to go through your circumstances in more detail.