Last Updated on 31st October 2020
Many of us are now looking at property investment and the timing couldn’t be better. 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.
With recent tax relief changes, existing landlords can also 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 slash 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.
It’s important to note that 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.
How landlords can benefit
With any mortgage type, there will be benefits and sometimes even drawbacks to consider. The main advantages for landlords having an offset buy to let mortgage are:
- Reducing the amount of interest you pay
- Cheaper monthly mortgage payments
- Possibility to reduce your mortgage term
- Access your savings if needed
- Can be tax efficient
- Make your savings work harder for you
While these are advantages, each borrower’s circumstances will vary. Please speak to an advisor before you commit to a mortgage.
Are there any drawbacks?
As with any mortgage type, there will be things to consider before applying. Possible drawbacks for an offset buy to let mortgage are:
- You may need a larger deposit than usual (25% minimum)
- Reduced number of lenders offering this product
- Not as much choice when compared to other mortgages
- Mortgage rates are typically higher than other 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, it may be better towards 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 to choose from. They aren’t used as often by landlords, but this is mainly because the majority of lenders don’t yet offer them.
Interest only buy to let mortgages are very popular and can help to boost monthly cashflow. 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.
Repayment mortgages for buy to lets 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.
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 who is able to assess your situation. We’ll then establish the right mortgage type before applying.
Offset buy to let mortgage rates
Mortgage rates are likely going to be 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, it’s still likely you’ll be able to reduce the amount of your monthly payments or the length of your mortgage term. This can result in an overall saving 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 borrowers 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. A lot of this will depend on your investment goals, budget and the type of property you’re buying.
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 things in more detail.