Could an offset mortgage be the solution for beleaguered landlords looking to boost their cash flow? Family Building Society, a relatively new Epsom-based lender, reckons it is. The society has launched a new buy-to-let offset product to help landlords make better use of their savings.
Offset mortgages offer greater flexibility, because they link your savings to your mortgage, reducing the balance on which mortgage interest is charged. For example, if you had a £100,000 mortgage and £20,000 in savings, you would only pay interest on £80,000. The Family Building Society product gives landlords the option to use the interest saved on the offset amount to pay off the balance faster or to cut the size of their monthly payment.
“The effect of this, other aspects being unchanged, is to increase the profit from letting and increase the landlord’s overall net cash flow,” says Keith Barber of Family Building Society. “This may be particularly important for retired investors relying on letting as part of their retirement income, for example. It’s also an ideal way for landlords to benefit from the regular sums they put aside for maintenance and improvements, or the tax to be paid on their letting income – something to be welcomed in this historically low-interest period.”
However, there is a sting in the tail – the interest rates are generally higher than standard rates. Family Building Society’s new product is a two-year discount deal, with an initial interest rate of 2.99%, and a product fee of £999. After two years, the mortgage reverts to its standard variable rate (SVR). The maximum loan-to-value is 65%.
“The 2.99% rate is not bad in itself, but it is discounted,” says Jonathan Harris, director of mortgage broker Anderson Harris. “[This is not great], as it is linked to the lender’s SVR rather than the base rate, so is set at the lender’s discretion. This means that even if interest rates don’t rise, the rate on the mortgage could. After two years at the discounted rate, the deal reverts to the SVR, which is currently a rather high 5.29%. It might be even higher at that time.”
Other lenders also offer offset buy-to-let mortgages. Hinckley and Rugby Building Society has a “lifetime discount deal”, with an initial rate of 2.89%. Clydesdale Bank’s product less competitive, with a rate of 5.1%, but has a maximum loan-to-value of 80%. “Offsets tend to be priced higher than standard deals, so, unless you have considerable savings to offset – so can effectively bring the rate down – you might be better off going for a standard deal,” says Harris. “Virgin Money has a two-year fix pegged at 1.54% with £1,995 fee, with the added advantage of the rate being fixed.”
For owner-occupiers, offset mortgages have made sense if you have a significant amount of savings and pay more in mortgage interest than you would earn in interest if you put the money in a savings account. However, the introduction of the personal savings allowance (PSA) – which allows basic-rate taxpayers to earn up to £1,000 per year and higher-rate taxpayers £500 in savings, income-tax-free – could trigger the need for a rethink. Because your savings now attract less tax elsewhere, they may not be so effectively used to reduce mortgage costs. An offset mortgage was also previously a way for higher-rate taxpayers to avoid the hassle of having to declare interest earnings, but the majority of those won’t have to do this now the PSA has been introduced.
Many borrowers, both landlords and owner-occupiers, would be better off simply overpaying on their mortgage rather than opting for an offset deal. However, make sure you check the terms and conditions of your mortgage first. Some lenders allow unlimited overpayments, others limit them to a percentage of the outstanding loan.
A penthouse for your car
The standout feature of the Porsche Design Tower in Miami is “The Dezervator” – a drive-in lift that whisks residents and their cars up to their apartments, says Henrietta Thompson in The Daily Telegraph. The concept was pitched to Porsche by Florida developer Gil Dezer (hence the lift’s name), whose real-estate portfolio includes six Trump-branded towers. Once the car has reached the owner’s flat, it remains on show “as if a work of art” behind glass. The Dezervator can also be seen from the outside through a series of cut-outs in the architecture. The 60-storey tower, which is Porsche’s first foray into residential real estate, houses 132 apartments featuring plunge pools, cigar decks and golf simulators.