What Is A Buy-To-Let Offset Mortgage?

A buy-to-let offset mortgage is a loan for landlords that links your savings to your mortgage. 

Your savings reduce the mortgage balance you pay interest on, which can lower your monthly payments or shorten your mortgage term.

How Do They Work?

Let’s say you’ve got a buy-to-let mortgage for a property in the UK worth £200,000. Now, imagine you’ve also got £20,000 saved up. With a buy-to-let offset mortgage, these savings are linked to your mortgage.

So instead of paying interest on the full £200,000, you only pay interest on £180,000. This setup could either reduce what you pay each month or, if you keep your payments the same, you could pay off the mortgage quicker. 

It’s a smart way to use your savings to save on interest and potentially boost your profits from the property.

How Much Can I Save?

Many landlords are turning to offset mortgages to reduce their costs and increase profits from their rental properties.

To get an estimate of how much you could save, use the repayments calculator below.

It’s a quick and easy way to work out your potential savings based on your numbers. Give it a go and see how an offset mortgage could work for you.

[Embedded Offset Mortgage Calculator]

Who Qualifies For Buy-To-Let Offset Mortgage?

If you’re considering a buy-to-let offset mortgage, the good news is that many of the eligibility criteria are similar to traditional buy-to-let mortgages. The unique aspect of an offset mortgage is how it integrates your savings. 

Here’s what you’ll need to qualify:

  • Your savings must usually be with the same provider as your mortgage.
  • You can link various savings accounts, including ISAs, personal, and business accounts.
  • Some lenders allow both personal and business current accounts to be linked for offsetting.
  • A maximum Loan to Value (LTV) of 75% is common, meaning you’ll need at least a 25% deposit.
  • Your projected rental income should ideally cover at least 125% of mortgage repayments.
  • A clean credit history will support your application, but some lenders consider those with past credit issues.
  • Lender criteria may also review your experience as a landlord and the number of properties you manage.

Is It Worth It?

Deciding if a buy-to-let offset mortgage is right for you comes down to weighing the benefits against the drawbacks.

You pay less interest by offsetting savings against your mortgage.
Monthly mortgage payments can be lower, boosting your cash flow.
There’s a chance to shorten your mortgage term, becoming mortgage-free sooner.
Your savings are still accessible, offering flexibility.
This setup can be tax-efficient, maximising your investment returns.
Your savings work harder, potentially offering better returns than sitting in a savings account.

You might need a larger deposit, usually at least 25%.
Fewer lenders offer this type of mortgage, limiting your options.
The choice of products isn’t as broad as with standard mortgages.
Interest rates for offset mortgages can be higher.
If you dip into your savings, your mortgage repayments could go up.
Offset mortgages aren’t available for HMOs or properties owned by limited companies.

Considering these points can help you decide if the benefits of saving on interest and having flexible access to your funds outweigh the potential limitations and costs.

Who Offers Offset Buy-to-let Mortgages?

Fewer lenders offer buy-to-let offset mortgages compared to standard mortgages. One option is the Family Building Society, known for its flexible approach.

Finding these mortgages can be tricky as not all lenders offer them. This is where a broker can help. 

Brokers know the mortgage market and can find lenders offering good deals on offset mortgages. They save you time by recommending lenders suited to your finances and goals.

What Are The Interest Rates?

Buy-to-let offset mortgages typically have slightly higher interest rates than standard buy-to-let deals. This is because your savings account is linked directly to the mortgage.

While you won’t earn traditional interest on your savings, the money in your account reduces the amount of your mortgage that attracts interest. So, you save on mortgage interest even if your savings don’t earn anything.

Be aware that offset mortgages often come with higher fees compared to standard mortgages. This reflects the flexibility of the product.

Other Types of Buy-To-Let Mortgages

Offset mortgages aren’t your only option. Here are two other common buy-to-let choices:

  • Interest-only buy-to-let. You just pay the interest each month, keeping payments lower. But you’ll need a separate plan to repay the loan amount in full later.
  • Repayment is buy-to-let. Your monthly payments cover both interest and some of the loan. By the end, you’ll own the property outright. This is simpler and builds equity over time.

Can I Use Offset Buy-To-Let Mortgages For HMOs?

Offset mortgages aren’t ideal for HMO (House in Multiple Occupation) properties.  Lenders have stricter rules for HMOs because they require more management. 

While offset mortgages are flexible for regular buy-to-let properties, they usually aren’t available for HMOs. 

Look into other mortgage options designed specifically for HMOs if you’re buying or refinancing one.

The Bottom Line

Buy-to-let offset mortgages let you use your savings to reduce your mortgage interest. This can mean lower monthly payments or a quicker payoff. You can still access your savings if needed, and it might even benefit your taxes.

However, there are downsides. You’ll likely need a larger deposit (around 25%) and there are fewer lenders and mortgage options available. Interest rates might also be slightly higher, and using your savings could increase your monthly payments. 

In some cases, using your savings for a bigger deposit could be better, as it unlocks lower interest rates and better terms.

Choosing a mortgage can be confusing, but a mortgage broker can help. They’ll explain your options, give personalised advice, and find you the best deals.

Need a broker? Reach out to us, for a free, no-obligation chat with a trusted mortgage broker who specialises in buy-to-let offset mortgages.