Planning your pension: Offset Mortgages
Many people like the idea of creating a property portfolio to fund their retirement. Not everybody is a fan of pension plans, but they do understand their property, I know that over the past 20 or 30 years it has been a sound long term investment despite the peaks and troughs.
In this case study, we look at one way we helped a client take her first step on the road to being a Landlord.
Remortgaging for a Buy to Let Mortgage in Durham
Emma is a self-employed mum of two, who is a Director of two small businesses in Durham. She and her partner had a substantial amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at auction.
Emma felt she could get some bargains at auctions, but she never had enough money to attend and be a cash buyer.
She had looked into Remortgaging her house in Durham for this purpose before but had been told it wasn’t possible unless they could provide an address for the onward property they wanted to purchase – the proverbial “chicken and egg” scenario.
Emma also mentioned that once or twice a year, she received a dividend in the region of £3000 from one of the companies she was a sleeping partner in, and she has been prone to wasting some of that cash when it arrived, perhaps unexpectedly.
Surplus Funds Allowing you to Gain Lower Rates of Interest
I could tell that Emma was a very busy person but also an astute businesswoman. The dividends she received could be put to better use as she never had it earmarked for anything specific.
I recommended an offset Remortgage in Durham for Emma and her partner secured on their home.
I found a Lender who was happy to release funds on completion to be assigned to a future buy to let purchase without insisting on a specific property.
Emma simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and these monies simply sit there until she needs them.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Emma had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Emma only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and was available whenever she needed it
It is Choosing the Right Property and the Right Amount of Investments
Three months after completion, Emma identified a suitable property that was in a state of disrepair. It was probably not mortgageable itself, but of course, Emma had access to liquid funds to buy the house outright.
Emma secured the property at a knock-down price of £55,000, but this amount needed to rise to a total of £70,000 to fund legal costs and a refurbishment program of works.
A further nine months went by, and with the works all done, Emma had no trouble finding a tenant. The house was now worth £90,000, and we raised a remortgage of £67,500 against it to fund the purchase of property number two.
The Successful Outcome of a Well-Constructed Investment Property Portfolio
Emma has no intention of becoming a full-time Landlord, but she can now see a way forward to owning three or maybe even four properties in the future to fund her planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings, and while she still ‘squander’ some of her dividend, which is her right to do. Without fail, half of it at least is deposited back into her offset savings account, her money working “for her” to reduce the total amount of interest repayable.
If you are interested in offset mortgages or building your investment property portfolio, please get in touch, and our mortgage advisors in Durham will be happy to assist you.
Date Last Edited: December 6, 2023
