Offset mortgages are popular and commonplace for home-owners because they can reduce monthly payments and help to pay off the mortgage early. But an offset buy to let mortgage? As far as I know, there is only one currently available. I doubt it will be around for long, so take a look now.
An offset mortgage works in a similar way to a traditional mortgage except that it is linked to a savings account. Any amount paid into the savings account is automatically deducted – or “offset” - from the amount of the mortgage on which interest is charged – making your money work more efficiently. It is particularly beneficial if you have large, irregular cash flows or out flows.
The Rate: 2 year offset discount at 2.99% (5.3% APR)
The buy to let offset mortgage currently on the market is only being offered to UK resident individuals – not partnerships or limited companies - at a discounted rate of 2.99% (5.3% APR) for two years.
In my opinion it is an extremely good product and is available as two options: Option 1 allows you to reduce your monthly mortgage payment. Option 2 allows you to reduce the overall term of the mortgage.
I honestly doubt either option will be available for long, so here are some examples explaining how they both work based on a loan of £250k and using savings of £50k as the offset amount.
Option 1: Reduced monthly payments
This is a good option if you need to reduce your monthly outgoings and improve cash flow. It doesn’t reduce the term of the mortgage, instead you save on interest payments. It is available on both an interest only and repayment basis.
|Offset BTL interest only||Non-offset BTL interest only||Offset BTL repayment||Non-offset BTL repayment|
|Savings (offset amount)||£50,000||N/A||£50,000||N/A|
|Term||25 years||25 years||25 years||25 years|
|Mortgage payment pcm||£498.33||£622.92||£947.38||£1,184.23|
|Saving||£124.59 pcm||-||£236.85 pcm||-|
Option 2: Reduced mortgage term
This option is available only on a repayment basis and means you can pay off the mortgage faster. So, instead of saving money on the monthly mortgage payments, the interest you save by offsetting your savings means you pay off more of the capital owed.
|Savings (offset amount)||£50,000||£50,000|
|Term||25 years reducing to c.18 years||25 years|
|Mortgage payment pcm||£1,184.23||£1,184.23|
|Saving||Mortgage interest is not payable
on your £50k savings. Instead
the £50k savings generates £124.58 pcm
which is used to reduce the capital. This
reduces the mortgage
term by c.7 years!
I hope these examples make sense but if you have any questions please don’t hesitate to get in touch and I can walk you through how each option might work for your particular circumstances.
Great features and benefits
In addition to reducing either your monthly mortgage payments or the mortgage term, this product has more great features and benefits:
Effective use of savings
Interest on borrowing is currently higher than interest on savings, so offsetting makes your money work harder. Furthermore, your interest saving reduces the impact of the restrictions in buy to let mortgage interest tax relief.
Use tax money to pay your mortgage
You could collect the money you will owe in tax in the saver account which can then be used to offset the mortgage – until the tax is due. Money in the saver account can be accessed instantly and used for any purpose at any time.
Effective use of family savings
Up to four borrowers allowed on this mortgage, and so, up to four saver accounts too – which could enhance either option (i.e. further reduce the monthly saving or further reduce the mortgage term).
Do bear in mind:
- Early Repayment Charges apply if you repay the outstanding mortgage in full during the discounted rate period, i.e. in the first two years.
- This product is available up to 65% LTV. The minimum loan amount is £45k and the property must have a minimum value of £120k.
- In reality your savings are likely to change (up and down) during the mortgage term but you will be able to view your mortgage and saver account online to find out where you are with the balance, interest and payments.
- The lender’s product fee (also known as the lender arrangement fee) is £999 for loans up to £500,000. The fee is 0.4% of the loan amount for loans above £500,000.
- Offsetting increases your net profit from letting which means that the tax charged on this higher figure will be more.
DO MAKE SURE YOU TAKE PROFESSIONAL TAX ADVICE!
- *Full terms and conditions available but see below for an overview.
Perhaps more importantly, if you are interested in this product, please do get in touch sooner rather than later as we can’t guarantee how long this offer will be on the market.
My direct line is: 01732 471613
Or you can contact your usual MFB consultant on 0345 345 6788.
*The small print
Offset Discounted at 2.99% for 2 years reverting to lender’s residential investment managed mortgage rate (currently, 5.29%). For purchases and remortgages. Early Repayment Charge: 2.00% in the first year, followed by 1.00% in the second year. Overall Cost for Comparison: 5.3% APRC. Loan to Value: 65% loan to value. Lender Arrangement Fee (Product Fee): £999 for loans up to £500,000. 0.4% of the loan amount for loans above £500,000. Application Fee: £175. Broker Fee: A broker fee of £497 will apply (other fee options available). For this rate, a linked Offset Saver must be opened.
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