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How do Buy to Let Offset Mortgages Work & are there any benefits?
We often get enquiries from investors who are looking for an offset mortgage for their buy-to-let properties.
Traditionally, offset mortgages have been popular in the owner-occupier market, but this is not to say there is not a demand for this type of mortgage from property investors.
The good news for property investors who are looking for a buy-to-let offset mortgage is, there is now a new mortgage provider that can offer this.
Molo has recently released its “Savings Booster Account” facility, which offers the same benefits as a buy-to-let offset mortgage product.
How do buy to let offset mortgages work?
There is no specific offset mortgage on offer by this mortgage provider, instead, upon completion of the mortgage, Molo will automatically create a “Savings Booster Account” for you.
This account will then allow you to deposit funds; these funds do not reduce the outstanding mortgage balance but will reduce the amount of interest you pay.
Molo charges a savings booster fee which is 50% of the interest saved, this fee is added to the monthly payment.
The below example illustrates how this BTL offset mortgage works
In this scenario, you have a mortgage of £300,000. The product on offer by Molo is 6.69%* fixed for 5 years. Monthly payments in this scenario are £1,672.
You deposit £30,000 into the “savings booster account”.
Interest is then only payable on £270,000.
Using the same interest rate of 6.69%*, your monthly payments are now reduced to £1,588. This is a saving of £1,008 per annum.
How does this compare to other buy to let offset mortgages in the market?
Firstly, Molo can offer this facility to both individuals and limited companies.
This mortgage provider can accept applications for simple Buy to Lets and Houses of Multiple Occupancy (HMOs) with 6 lettable rooms. Currently, they do not accept Multi-Unit Freehold Block of Flats (MUFB) applications.
In terms of products on offer, Molo’s products for limited company applications start at 6.69%* fixed for 5 years.
In comparison, the current cheapest 5-year fixed product with no offset facility is 5.40%* for a limited company.
Using the same loan amount of £300,000, monthly payments in this instance would be £1,350.
Conclusion
Whilst Molo’s Savings Booster account is currently a unique offering in the buy-to-let market, their current interest rates are far higher than that on offer from other more competitive lenders.
Due to this, you do have to offset a large portion of the loan for it to be competitive.
From the above example, it is hard to see how the savings booster facility can financially benefit property investors, especially when considering there are more competitive rates on offers from other lenders.
This being said, each case is individual and as such, Advocate Finance will assess your case on its own merits.
*Rates correct as of 28/11/22 rates quotes are subject to change so please contact us for the latest rates available to you.
How can Advocate Finance help?
Advocate Finance are experts in arranging funding solutions for property investors and developers. We have access to a wide panel of trusted lenders and thanks to our unparalleled knowledge of the property investment market, we are able to secure the most suitable products for your individual funding needs.
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