For ten years offset mortgages have offered great benefits to large mortgage borrowers in the UK. The ability to overpay, to drawdown overpayments and to use savings to reduce interest charges have attracted thousands of borrowers since this type of loan was introduced back in 2002. Now, a leading UK bank has launched a ‘buy to let’ offset mortgage. Could this be great news for landlords?
The benefits of an offset buy to let mortgage
Islay Robinson, director of London mortgage broker Enness Private Clients explains how an offset mortgage works.
“The main benefit of an offset mortgage is that your high value mortgage account is linked to one or more savings accounts. Any cash in your savings accounts is ‘offset’ against your mortgage debt. For example, if you had an offset mortgage of £900,000 and £100,000 in your savings account, you’d only pay interest on £800,000. However, as your mortgage payments are based on a loan of £900,000, you are effectively making an overpayment every month. And, you retain access to your cash savings should you need them.”
Clydesdale launch offset ‘buy to let’ deal
One of the UK’s leading offset lenders has launched a buy-to-let offset mortgage. Clydesdale Bank have unveiled their offset mortgage for investment property for loans between £100,000 and £500,000, Clydesdale are charging a variable rate of 5.35 per cent on this product and it has an arrangement fee of £999. There is a maximum 80 per cent loan to value for repayment loans and 70 per cent loan to value for interest only loans. High net worth mortgage borrowers can link up to six Clydesdale Bank current and savings accounts to the mortgage.
This new deal offers three main benefits:
- You’ll repay your large mortgage off more quickly – If you offset your savings against your buy to let mortgage and continue to make the same mortgage payment, more of your payment goes towards paying off the capital.
- You’ll retain access to your savings – With a traditional buy to let mortgage it can be difficult to ‘re-borrow’ any lump sum repayment you make. However, with an offset buy to let mortgage you always retain access to your savings.
- You’ll pay less interest – When you offset your savings interest against your buy to let mortgage balance you are effectively reducing your outstanding mortgage debt. So, if you owe less money to your lender, you’ll pay less interest.
Jemma Smith from the Yorkshire Building Society, who pioneered this type of lending in 2002, said: “We truly believe offset provides a genuine opportunity for consumers to save thousands of pounds on their mortgage. Due to low savings rates you can get the best overall return on your mortgage and savings accounts, whilst maintaining full flexibility.”
Mr Robinson, the London mortgage advisor, added: “A buy to let offset mortgage can provide great flexibility if you’re looking to get the most from your savings. While the Clydesdale deal isn’t the most competitive interest rate in the market, an offset deal could certainly help some high value mortgage clients.”