Currently, our main challenge is clients hesitating to secure their next mortgage in hopes of more competitive pricing. However, high fees and limited specialist product options – like the lack of offset mortgages – also limit options for our clients.

Beware high arrangement fees

Following Liz Truss’ mini Budget, a new type of product entered the market. High interest rates and tougher RTI calculations made it difficult for many to pass lender affordability requirements, effectively making them mortgage prisoners. To combat this, lenders introduced higher arrangement fees to reduce pricing and meet RTI calculations.

These came with varying benefits and drawbacks for clients:

• Benefit: Lower rates are better for cash flow and offer more generous RTI calculations
• Drawback: As your mortgage balance increases, there are risks if house prices fall

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The product gap that needs filling

An offset mortgage can be a beneficial option for landlords, though it is not widely available. This type of mortgage links your savings or current account to your mortgage, provided both accounts are with the same lender. Instead of earning interest on your savings, the bank offsets your savings against your mortgage debt, meaning you only pay interest on the net amount.

Example:

• Mortgage: £300,000
• Savings: £50,000
• You only pay interest on £250,000

There are multiple benefits for landlords, including reduced interest payments, as by offsetting savings against the mortgage, you pay less interest, which can significantly reduce your mortgage costs over time.

There is also flexible cash flow management, as you can usually withdraw your offset savings anytime, giving you liquidity. This is particularly handy for property repairs, covering void periods and unexpected expenses.

Tax efficiency is another factor, as landlords can no longer deduct full mortgage interest from rental income for tax purposes. But with an offset mortgage, you’re not earning taxable interest on savings but instead reducing interest costs, which is effectively tax-free saving. This can be more tax-efficient than earning interest on savings and paying income tax on it.

Faster mortgage repayment is another option, as you can pay off your mortgage sooner without making formal overpayments by keeping money in the offset account.

Another option is better use of idle cash, so instead of leaving rental income or reserves sitting in a low-interest savings account, you put it to work reducing your interest burden.

What we need from mortgage lenders

Despite being a readily available option for homeowners, very few lenders offer this product in the BTL space. Lenders entering this space would significantly improve landlords’ financial positions, with tax savings and lower borrowing costs.

Innovative property finance options like this are essential in a challenging market for all landlords. Finding new ways to support our landlord clients will help boost business for brokers and lenders and incentivise activity in the BTL space.

So, lenders, your move.