Buy To Let Offset Mortgage?

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  • My husband and I currently have an offset on our home mortgage and as we have savings, have found it a great way to reduce interest on the loan. We're planning to live abroad for a couple of years and let the flat while we're away.
    We'll be leaving our savings here so would like to continue using them to reduce mortgage interest. We'll need to convert to a buy-to-let while it's rented out.
    Does anyone know of a lender who offers a buy-to-let offset mortgage? Thanks in advance.
  • kingstreet
    kingstreet Posts: 38,691
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    My husband and I currently have an offset on our home mortgage and as we have savings, have found it a great way to reduce interest on the loan. We're planning to live abroad for a couple of years and let the flat while we're away.
    We'll be leaving our savings here so would like to continue using them to reduce mortgage interest. We'll need to convert to a buy-to-let while it's rented out.
    Does anyone know of a lender who offers a buy-to-let offset mortgage? Thanks in advance.
    Ask your current lender if it will grant consent to let.

    As mentioned earlier, mortgage interest is an allowable expense against the rental income, so offsetting means you will end up paying more tax on the surplus rent after expenses.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • supraman
    supraman Posts: 8 Forumite
    kingstreet wrote: »
    As mentioned earlier, mortgage interest is an allowable expense against the rental income, so offsetting means you will end up paying more tax on the surplus rent after expenses.

    Can you elaborate on this please?


    I will give an example in the hope that it might identify any misunderstanding that I have:

    Scenario 1: If I have a buy-to-let mortgage of £50,000 at a rate of 5% and an annual rental income of £6,000 then I have:


    Interest: 5% x £50,000 = £2,500
    Gross Profit: £6,000 - £2,500 = £3,500
    Tax: 40% x £3,500 = £1,400
    Net Profit: £3,500 - £1,400 = £2,100


    Scenario 2: However, if I am able to offset £30,000 and effectively reduce the mortgage to £20,000 then I have:


    Interest: 5% x £20,000 = £1,000
    Gross Profit: £6,000 - £1,000 = £5,000
    Tax: 40% x £5,000 = £2,000
    Net Profit: £5,000 - £2,000 = £3,000


    So, yes, I pay more tax, but only because I'm making more profit, which seems like a good thing. Am I missing something?


    By the way, I realise that I could simply increase my deposit by £30,000 on a non-offset product, but I want to keep the money available for investing in other properties.


    I also realise that in Scenario 1, the £30,000 could be invested in a bank account that pays interest, which would reduce the advantage of Scenario 2. However, the interest rate would be lower and I would have to pay 40% tax on that interest.
  • kingstreet
    kingstreet Posts: 38,691
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    No, you're missing nothing.

    There are no offset BTL products though.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • supraman
    supraman Posts: 8 Forumite
    kingstreet wrote: »
    There are no offset BTL products though.
    Well actually the Clydesdale Bank offer one. I was just about to apply for it when the adviser explained that, rather than reducing the interest, your monthly payment stays the same, but any excess becomes a capital repayment, even with an interest-only mortgage.


    I was very disappointed as this seems to negate the benefit of offsetting your savings until you have a need for the money, most likely to buy another property.
  • kingstreet
    kingstreet Posts: 38,691
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    That's not my definition of an offset mortgage. That's just a product which allows overpayments, which most products do anyway.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • supraman
    supraman Posts: 8 Forumite
    kingstreet wrote: »
    That's not my definition of an offset mortgage. That's just a product which allows overpayments, which most products do anyway.
    I understand what you're saying and I agree with you to some extent.


    I did eventually take out 3 buy-to-let offset mortgages with the Clydesdale Bank and they're working out pretty well for me. I decided that the subtle distinction between reducing the monthly payment or keeping the same payment but apportioning some of it to capital repayment wasn't as big a deal as I'd first thought. In particular, my understanding is that it's possible to request that this "overpayment" be refunded at any time, although I think it does require the payment of a £40 CHAPS fee.


    So, as long as it continues to be possible to get the overpayments back, the Clydesdale Bank offering is effectively a true buy-to-let offset product and I'm not aware of anybody else in the market offering a similar product.


    By the way, I have 7 different bank accounts, all of which offset against the 3 mortgage accounts. It's also possible to be quite specific about which bank accounts offset against which mortgage accounts.
  • kingstreet
    kingstreet Posts: 38,691
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    Ten more days and we could have had a cake, candles and jellly and ice-cream. :D
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • supraman
    supraman Posts: 8 Forumite
    kingstreet wrote: »
    Ten more days and we could have had a cake, candles and jellly and ice-cream. :D

    Brilliant!


    Errr, yeah, sorry about the delay in replying. I only revisited the site today and saw your message for the first time.
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