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Offset Buy To Let Mortgages

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 9, 2021

Being a landlord can be hugely rewarding and very profitable – but it can also be costly. Upkeep and maintenance costs, managing rental void periods and paying tax bills, it all adds up.

This is especially true since changes were introduced to the way landlords are taxed on their buy to let income. Under new measures introduced in 2017 the amount of tax relief landlords are able to claim on their mortgage has been significantly reduced.

As such tax bills are much higher than they once were. However, there is a way to reduce the impact of this.

With an offset buy to let mortgage you can use your savings to reduce the interest payable on a mortgage. Pretty handy, eh? Let’s take a closer look.

Offset buy to let mortgages are relatively new and, as such, there’s not that much awareness of them. The experts we work with work closely with lenders across the buy to let field and can help to find the ideal product for you.

What is an offset mortgage?

With an offset mortgage, you can use your savings to reduce the amount of interest you pay on your mortgage. It’s ideal for landlords since the changes in the law mean you can’t deduct interest payments from tax. You’ll need to keep your savings in an account with the same bank or lender that provides your mortgage.

For example, if you have a £200,000 mortgage and £20,000 in savings, you’ll only pay interest on £180,000.

Here’s an example of offset vs standard BTL mortgage

Based on a £200,000 mortgage –

Income £18,000
Interest – 2.99% £5,980
Tax (Without higher rate relief) £7,200
Tax Credit (Basic) -£1,196
Total costs: £11,984
Profit: £6,004

Offset Mortgage – With £40,000 savings

Income £18,000
Interest – 2.99% (On £160,000) £4,784
Tax (Without higher rate relief) £7,200
Tax Credit (Basic) -£957
Total costs: £11,027
Profit: £6,973

The above correct at the time of writing and is for illustrative purposes only.  Talk to a tax or mortgage expert and check current interest rates.

Is a mortgage offset account worth it?

There are a few pros and cons to weigh up when you deciding if an offset buy-to-let mortgage will be right for you.

One of the main advantages is that you can often reduce the amount of interest you will need to pay on your mortgage loan, although how much you could save will depend on how much you have in savings.

To learn more, see our article about the advantages and disadvantages of using an offset mortgage, or make an enquiry and talk to one of the expert buy to let mortgage brokers we work with. They will be able to answer all your questions and help find the right mortgage at the best available prices for you.

How can an offset buy to let mortgage help me as a landlord?

As a landlord you’ll have to pay tax on the money you earn. Until 2017 landlords could deduct all of the interest they pay on their mortgage from their tax bill. In short, they would only be taxed on their profit, not their turnover. As most landlords have an interest-only mortgage this meant savings could be significant.

From 2017, however, the amount of mortgage cost that a landlord can deduct from their tax bill has been reducing. By 2020 it will reach zero. From 2020 landlords will be taxed on all of their income and given a 20% tax credit, even if you’re a higher or additional rate tax payer. As such tax bill could increase significantly for some landlords.

An offset mortgage can help to reduce the costs landlord face. By putting your savings into an account linked to an offset mortgage balance you’re able to reduce the interest due. And that will help to reduce the impact of the tax relief changes.

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Can I access my savings with an offset?

With offset buy to let mortgages the money in your savings account will still be accessible. These mortgages are flexible buy to let mortgages and lenders recognise that landlords need access to their cash.

Can I get an offset mortgage for buy to let if I buy through a limited company?

Not at the time of writing, no.

Are buy to let offset mortgages available for HMOs?

No, not currently – although that may change as the market becomes bigger.

Are interest rates higher for a btl offset mortgage?

They can be. There are not many offset mortgages for landlords on the market and the flexibility they provide usually means a higher rate is charged. As more lenders enter this field, however, and competition increases we should see rates become more competitive.

Are there alternatives to offset buy to let mortgages?

Absolutely. You may find it more profitable to simply remortgage to the best and lowest rate available – it may be that the offset rate is not as good overall depending on your savings when compared to the best deal.

As a landlord, you need to look at which one will provide the most profit.

This is where the advisors we work with come in, they’ll help you with the right advice on which is the best course of action.

Talk to an expert offset BTL mortgage advisor today

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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