Published 31st October 2020 · Updated 14th August 2023 by Martin Alexander
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 a savings account with your mortgage lender to qualify.
For 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 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 the following:
- 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
- It isn’t 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 to ensure you get the best deal.
What other types of buy-to-let mortgages are there?
An offset mortgage is just one type of buy-to-let mortgage. Landlords don’t use them as often, mainly because most lenders don’t yet offer them.
With so many options, 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 can 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, as you’re only 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 to 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 must be tied to your mortgage lender. You’ll also likely not 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 interest you pay on the loan.
Mortgage fees will typically be higher than average. This is again due to the nature of the loan. Just because you can offset your savings against your mortgage balance 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 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 discuss your circumstances in more detail.
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About the author
Martin Alexander
Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.