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!