Offset mortgage can provide instant access war chests for Buy to Let investors

Offset mortgage can provide instant access war chests for Buy to Let investors

13:37 PM, 21st February 2014, About 10 years ago 9

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Recently a Property118 reader remortgaged his own main residence using an Offset mortgage. It was valued at £700k and he capital raised a further £300k (bringing his mortgage to a new total of £450k).

He then placed the £300,000 equity released in to the mortgage-linked offset savings account. By doing this he is still only paying interest on the net balance of £150k until he needed the money.

Crucially, what he did was to effect a £300k instant access ‘overdraft’ and he has since used these immediately available funds as deposits (and full purchase fund as required on one occasion) towards numerous Buy to Let opportunities that he may not otherwise have secured if he needed to wait for the finance. The beauty of instantly available offset mortgage finance is you are paying the lowest mortgage interest payment whilst funds are in the savings pot, and have immediate funds available when an opportunity crosses his path.

And Offset mortgages are still being introduced to the market. The latest is from the Woolwich who have just announced a new 2 year Offset tracker 80% LTV product.

These are different to the old overdraft type “Reserve” mortgage current accounts as you used to pay the actual balance off these, but some lenders later on refused to let you draw the funds back out again.  With Offset mortgages you draw all the funds required from the mortgage account and just place the excess cash in a separate savings account which cancels out the corresponding amount you pay mortgage interest on in the loan account eg the Lender can’t decide not to give it back to you at a later date.

Another new product is the Ipswich BS 1.97% fixed rate deal – in a similar vein as above, a Client could (capital raise) remortgage a current home right up to 75%LTV at just 1.97% interest rate and use the funds towards purchasing a Buy to Let property  (and this is indeed an approved reason for capital raising).

This is not an offset mortgage product but by capital raising at just 1.97%, it does offer excellent value for money. And if enough can be raised on the main home, the capital raised could even reflect 100% of purchase price. 100%LTV for a BTL property at just 1.97% rate??? Where else can this be legally achieved!Offset mortgage


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Neil Patterson

13:40 PM, 21st February 2014, About 10 years ago

I would just like to stress that any individual advice concerning a main residence mortgage is regulated by the FCA and you must be fully qualified and practicing.

If you need any assistance with an Offset mortgage please click on Howard's member profile at the top of the article 🙂

Colin Childs

18:41 PM, 21st February 2014, About 10 years ago

Much hinges on whether lenders will allow the release of equity upon remortgage. While this concept of using property as an ATM's in the past was how many build their property empires. Also the reason for their downfall for a fair number. I'm expecting clear blue water to emerge between residential and commercial activity in the future. As lenders are potentially at risk not just the borrowers.

Sam Wong

18:51 PM, 21st February 2014, About 10 years ago

Reply to the comment left by "Neil Patterson" at "21/02/2014 - 13:40":

I clicked on Howard Rueben's profile and filled in a form.
Error messages said :
This phone no is already in use.
This email address is already in use.

Of course they are already in use - they are my phone nos and email address !
Tried it a few times. Very frustrating.

Can you help ?

20:02 PM, 21st February 2014, About 10 years ago

Yes but as soon as you dip into the £300k then the amount of interest you pay goes up so that if you spend £100k then your interest payments will be on £250k and not £150k. Doh! I have had an offset mortgage for years and because I am building up savings to pay off the mortgage in a few years time my repayments are paltry. Also with my scheme I can link several accounts to this.

Mark Alexander - Founder of Property118

20:56 PM, 21st February 2014, About 10 years ago

Reply to the comment left by "sam " at "21/02/2014 - 18:51":

Hi Sam

I have identified and I I believe I have fixed the issue on the Contact Form on Howard's member profile

Sorry about that, it was a programming oversight on my part 😳

It should now be fixed if you would like to try again.

Sam Wong

6:38 AM, 22nd February 2014, About 10 years ago

Reply to the comment left by "Mark Alexander" at "21/02/2014 - 20:56":

Thanks Mark.

Jeremy Smith

9:17 AM, 22nd February 2014, About 10 years ago

If the new "savings" of say, £300k, are in a savings account and not offset directly in the mortgage account, then if the bank went under, you would only be protected for £85k of that £300k.
-But of course the same doesn't apply the other way round for the £150k mortgage, you'll still owe all of that, and of course the extra £300k that you borrowed but you no longer have, save for £85k !!


2:02 AM, 23rd February 2014, About 10 years ago

Reply to the comment left by "Jeremy Smith" at "22/02/2014 - 09:17":

This is not strictly true as under FSCS rules borrowings and savings are netted out before the £85k limit is applied!

Since if the £300k is kept in an offset account, then it would be netted off the £300k mortgage increase.

Jeremy Smith

0:38 AM, 24th February 2014, About 10 years ago

Reply to the comment left by "Ian Clifford" at "23/02/2014 - 02:02":

Sorry Ian, I'm trying to see what you mean here...

If I create an example, you can tell me if I'm correct in my thinking:

If I have a £150k mortgage, then borrow £300k from it (making the mortgage £450k) and keep it in savings account (£300k), with the same bank but not an offset, then if the bank went under, I still owe £150k, and I do not lose £215k of my new savings.
... Is that what you mean by netted off ?
...does it depend if the savings are in an 'offset' account or not ?

But what if I had a £450k mortgage and had my own £300k in a savings account with the same bank, do I lose £215k of my savings, or do I not lose anything, since my mortgage and savings are "netted together" just like the previous example ?

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