Buy-to-Let Offset Mortgage

LALALA_4

Hi,
I've been lurking here for a few years, but this is only my second forum posting, so hello and can I have some advice please?

I currently have a mortgage of £88k on a property that I plan to rent out while I go to university. Its with Abbey on their SVR and I'm just waiting for permission from them to let the property. Property value is approx £225k, so 39% LTV.

I hope to get rental income of £850pcm and will be moving to rented accomodation myself while I'm studying.

I'll probably end up being a 22% rate tax payer as I will work during the holidays, so I'll pay 22% tax on the rent less interest payments on the mortgage.

I've got cash savings totalling £75k in ICICI Hisave earning 6.3%, plus £12k in cash ISAs and a few shares and Scottish Friendly Bond which matures in 2012 (don't ask!). Currently the mortgage is £794 pcm, I was thinking of using my savings to pay off £70k of the mortgage and using the proceeds to live off, but I've been told that it is foolish to lock the money away and I should be looking at an offset deal instead.

Does anyone know if this would be possible on a buy-to-let, and would you agree with that advice?

Thanks in advance.

LALALA_4

As a supplement to the above question, does anyone know how the tax would work on an offset arrangement?
I've been quoted interest only repayments of £447 per month on a loan of £88k.
If I held an average balance of £74k in the offset savings account for the year, this would reduce the capital outstanding to £14,000 - therefore interest charged would be 6.1% of £14k = £854 which is £71 per month.
When calculating the tax due, would I be able to deduct the £447 against the income of £850 thus paying tax on £403 less wear & tear etc.

Or would I only be able to deduct £71 per month from the £850 income?

If anyone knows the answer to this I'd be very grateful.