Offset Buy to Let Mortgages

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Offset buy to let mortgages

An offset buy to let mortgage gives you the ability to use your savings to reduce payable interest on your mortgage. If you have a decent sum of money already saved up, you could noticeably reduce your mortgage payments. For example, if a buyer had a mortgage of £175,000 and they had £25,000 in their savings account, they would only have to pay interest on the £150,000 sum. Landlords could make good use of offset buy to let mortgages as it will help alleviate tax costs.

Buy to let mortgages are conventionally offered on an interest-only basis. This is mainly to help with affordability. So every month, the interest is paid off, but no money is paid towards the equity in the property. Lenders usually require more thorough calculations to help determine whether a buy to let mortgage is the right option and this has been the case for some time now.

Key Criteria & Application Guidance

An offset mortgage links the mortgage with a current account. So, lenders assume that the balance owed is reduced by the balance that is held in the offset current account. As a result, this then “reduces” the balance, leading to the lender calculating the interest rate on this lower balance.

Some borrowers may decide to not make overpayments on the mortgage and just simply deposit money into the offset account. This helps lower your interest rate whilst still having the benefit of access to your offset account. Ultimately, offset mortgages can offer more flexibility by allowing access to the money in the offset account. While the funds are not being used, they can reduce your monthly interest rates.

Watch this video about the pros and cons of offset mortgages

Pros and Cons of Offset Buy to let Mortgages

There are pros and cons to consider regarding Offset Buy to let mortgages that could help you understand whether offset buy to let mortgages are right for you.

Pros

More savings equals less interest

One key benefit to offset buy to let mortgages is that you could decrease the amount of interest that you would have to pay on your mortgage. This depends on how much money you have in your savings account that you would want to offset. The more money you have in savings, the less interest you could end up paying for on your mortgage.

Pay off your mortgage sooner

In addition, with an offset buy to let mortgage, you could potentially pay off your mortgage quicker than a standard mortgage plan. For example, if you are paying 3% interest on your mortgage and you are only getting 1.5% on your savings then the obvious choice would be to offset.

Individual savings accounts (ISAs)

Some lenders may permit the offsetting of current accounts as well as Individual savings accounts (ISA). This can be ideal as you don’t have to pay any tax with ISAs meaning your savings will not dwindle over time. Which in regards to offsetting the ISA – means your interest rate should not be negatively affected.

Cons

On the other hand, there are downsides to offset buy to let mortgages that could put you off the idea. There could be more financially efficient solutions available.

New tax system

It could be more financially beneficial to use your cash savings towards the initial deposit, instead of as part of an offset mortgage. Before April 2017, you could deduct your mortgage interest payments from your rental income, before paying tax on it.

However, the rules have now changed. Since 2020, private landlords cannot claim tax relief on mortgage interest payments. Instead, the full rental income will be taxed. To replace the tax relief system, the mortgage interest payment will be eligible for 20% tax credit instead. Depending on salary and other forms of incomes, landlords could end up in higher tax brackets. Therefore, there will be even more tax to pay.

For example, a landlord owns a property that generates £12,000 a year in rent. The mortgage interest payments are £8,000.

The landlord will be taxed on the full rental income. (Basic rate taxpayers – £2,400 / Higher rate taxpayers – £4,800).

The landlord can claim a 20% tax credit on their mortgage interest payments – £1,600.

Understanding Market Rates & Repayment Terms

Specifically, the total tax bill for the basic rate taxpayer will be £800. The total tax bill for the higher rate taxpayer will be £3,200.

Less choice

In addition, the mortgage and the linked savings account usually have to be set up with the same lender. This could reduce the amount of options available to you. Also, a number of lenders do not offer offset mortgage plans.

Insufficient funds for LTV deposit

Lenders that can help with an offset buy to let mortgages could potentially request a loan to value (LTV) ratio of at least 75%. Therefore, you would require a deposit of at least 25%. Which could cause issues if your deposit does not cover the 25% required.

Using offset savings could set you back

If a withdrawal needs to be made from an offset savings account, it could increase your interest rates and/or your monthly payments. That can become a struggle if you require some extra money for a specific circumstance. Taking out any money could increase the amount of time you may have to spend paying off your mortgage.

Alternatives to offset buy to let mortgages

You may want to consider the alternatives to offset buy to lets. The good news is that there are other avenues to explore which could be a better option.

Taking out a secured loan could be a viable alternative depending on your circumstances. Secured loans are usually much easier to obtain as you’re using an asset as a guarantee on your payments. To find out more about secured loans click the button below

To learn more about Secured Loans, click here

If you are a landlord, it could be a good idea to remortgage to a lower rate if possible. The offset rate may not be as good overall in regards to your savings in comparison to the best deal. The best thing to do would be to speak to an advisor to help you find the right solution.

To learn more about Remortgaging, click here Mortgage Overview Buy to let Overview Secured Loans Overview

Latest Articles

Whole-of-Market Guidance for Offset Buy To Let

Securing competitive terms on offset buy to let requires expert underwriting knowledge. In addition, our specialist broker team works directly with over 90 specialist lenders across the UK.

Consequently, reviewing your offset buy to let options with an FCA-authorised specialist credit broker ensures whole-of-market access while avoiding unnecessary fees and delays.

Specialist Underwriting & Whole-of-Market Access

Because specialist lending facilities require bespoke underwriting, comparing lenders across the UK is essential. Explore our complete guide to Buy to Let Mortgages to understand how different lending criteria apply to your requirements.

Promise Money is an independent credit broker authorised and regulated by the Financial Conduct Authority (FRN 681423). Our experienced team reviews your specific circumstances to secure optimal terms across 90+ UK lenders.

Explore Buy to Let Mortgages →

Key Takeaways: Offset Buy To Let Checklist

Additionally, property valuations can often be expedited or desktop-assessed, significantly reducing upfront costs and surveyor delays.

Furthermore, specialist buy to let lenders assess affordability using rental coverage formulas or top-slicing personal income.

Consequently, property investors and landlords can secure competitive mortgage terms even with non-standard properties or portfolios.

Therefore, working with Promise Money ensures you compare optimal rates and terms across 90+ UK lenders.

Specifically, flexible interest options—including fixed, tracker, and interest-only structures—can be tailored to protect your cashflow.

Moreover, mortgage terms can be structured for private individuals, limited companies, and special purpose vehicles (SPVs).

In addition, non-standard property construction such as flats above shops or multi-unit blocks can be financed smoothly.

Crucially, landlords facing historic credit blips or complex income structures can secure competitive terms through our panel.

Lending Considerations & Next Steps

In practice, working with experienced specialist solicitors prevents administrative hold-ups and keeps legal fees completely transparent.

Above all, understanding tenant demand and realistic rental yields ensures sustainable long-term property investment performance.

As a result, landlords and property investors retain complete control over project timelines and financial returns.

After all, independent whole-of-market guidance ensures you never pay unnecessary arrangement fees or higher interest margins.

Meanwhile, second charge buy to let options allow you to raise deposit funds without remortgaging existing properties.

Indeed, rapid decision turnaround gives you the confidence to negotiate decisively on new property acquisitions.

Finally, clear illustrations provide total transparency regarding arrangement fees, valuation charges, and net cashflow returns.

Unlike high street banks, specialist buy to let lenders accommodate portfolio landlords with more than four properties.

Fortunately, offset buy to let mortgages allow landlords to link savings balances to reduce monthly interest costs.

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