The main benefit of an offset mortgage is that your high value mortgage account is linked to one or more of your savings accounts. Any spare cash in your savings accounts is then ‘offset’ against the interest on your mortgage debt. For example, if you had an offset mortgage of £1,000,000 but you also had £100,000 in one or more of your savings accounts, you would only be required to pay interest on the difference between the debt amount and the savings amount i.e. only on £900,000 in this particular example.
However, as your monthly mortgage payments are based on a loan of £1,000,000 you are effectively making an overpayment every month. And, you retain access to your cash savings should you need to use them at any time, although any reduction in the amount of savings held in the savings accounts will, of course, affect how much you are overpaying your mortgage every month.
Since the offset mortgage was reintroduced to the UK mortgage market in 2002 we have seen benefits such as the option to overpay, to drawdown overpayments and to use savings to reduce interest charges, this is particularly attractive to many high net worth individuals who typically have more complex financial arrangements and are more likely to have a range of accounts holding substantial amounts of cash. Clydesdale Bank have increased their offering to a ‘buy to let’ offset mortgage, which is great news for many landlords. For mortgage loans between £100k and £500k they are currently charging a variable rate plus a fixed one-time arrangement fee. There is a restriction of a maximum 80 per cent loan to value for repayment loans and 70 per cent loan to value for interest only loans. As many as six current accounts and savings accounts can be offset against a single loan amount.
With this particular offering from Clydesdale Bank a borrower can benefit from quicker repayments as more of the mortgage payments will go towards offsetting the capital if the savings are offset against the loan. The borrower will also retain access to their savings, unlike a traditional buy-to-let mortgage where it can often be difficult to access the savings amounts or to ‘re-borrow’ from them. A borrower will essentially be reducing their outstanding debt amounts as with the savings offset against the mortgage debt there can potentially be significantly less interest to pay, depending on the level of savings held in any one month.
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A buy to let offset mortgage can provide great flexibility for high value mortgage borrowers or, indeed, anyone with a significant sum of savings, especially for those people who are looking to get the most from cash savings whilst retaining access to them should they be needed. While the current Clydesdale Bank deal is not the most competitive interest rate currently available in the UK mortgage market, an offset deal such as this could certainly be a very attractive proposition to some high value mortgage borrowers.
This article has been written on behalf of Enness Private Clients, who offer an expert and focussed service specifically for clients requiring big mortgages. As a specialist London mortgage broker they work with people from all walks of professional life: from lawyers, hedge fund managers and board directors to entrepreneurs and self-employed business people.
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