Many of our clients start with one Buy to Let property and end up with dozens! Becoming a portfolio landlord changes how you manage Buy to Let mortgages. The Mortgage Mum Specialist Finance Team is here to help you with your next portfolio mortgage.
What is a portfolio landlord?
Once you own four Buy to Let properties, lenders consider you a portfolio landlord, though the approach to assessing your portfolio and lending options does differ from lender to lender.
As a portfolio landlord you have more choice over how you mortgage your properties. You can have separate mortgages with different lenders, or you can put some or all of your properties on a single, portfolio mortgage.
How do lenders assess mortgages for buy to let and portfolio landlords?
Affordability for buy to let mortgages is assessed on the rental income, rather than your personal income and other criteria will also apply. Lenders stress test the rental income using their defined interest rates and expect that the rent will be at least 125% higher to account for voids and other costs and to ensure your mortgage will be affordable if interest rates rise.
Lenders will also stress test background portfolios where you have more than four properties, resulting in two affordability assessments which your broker can help you to work through.
How much deposit will I need and what type of finance can I get?
It is common for buy to let mortgages to be secured at 75% loan to value, meaning that you need 25% deposit or equity within the property. Some lenders may allow 20% deposits subject to affordability and market conditions. Deposit requirements can vary depending on the property type and location and will be higher with other specialist or commercial finance options.
Loan terms can be fixed or variable rates, repayment or interest only in line with other mortgages. Investors tend to choose interest only mortgages rather than repayment, to maximise cashflow, but having a credible repayment strategy for the end of the mortgage term is essential.
Speak to an expert
We will work at times that suit you and your family, carrying out appointments via video call, telephone or email, giving you the benefit of first class service, around your own schedule, and in the comfort of your own home. So let us handle your mortgage today and find out how well we can look after you, The Mortgage Mum way!
Am I a portfolio landlord if I have some properties within a limited company and some held in my personal name?
Yes, though lenders will have different approaches to stress testing your portfolio. Some may stress all mortgaged properties owned by you and others may only stress those in the ‘entity’ under which you are applying i.e. the named limited company or you as an individual.
A limited company set up for the purposes of renting property is known as a special purpose vehicle and can be a tax efficient way to manage your portfolio. Tax advice should be sought from a specialist before deciding if this is the right approach for you.
Why would I require a portfolio loan?
A portfolio mortgage is treated as a single account, so you would only have one monthly payment for all your properties.
Whether this approach is a good idea will depend on your specific situation and your future plans. Your mortgage broker can offer you a range of options and bespoke advice. Some landlords choose a portfolio mortgage because it simplifies their finances. Portfolio mortgages can also make it easier to use the equity in your properties for further investment.
How does a portfolio mortgage work?
Every lender has their own rules and criteria for portfolio mortgages. Some will set a minimum total value for the portfolio – for example, your properties might need to have a total value of at least £500,000.
Other lenders might limit the number of properties they will lend on, or the total amount you have tied up in mortgages across your portfolio.
Once your broker has identified a lender that will suit your situation, the application process and structure of the loan works in a similar way to a standard mortgage.
You won’t necessarily need a cash deposit, but lenders will only go up to a set Loan to Value, so you will need a level of equity across your properties. For example, if a lender limits its borrowing to 70% Loan to Value, you would be able to borrow a maximum of £700,000 on a £1,000,000 property portfolio. You will also need to pass the lenders affordability stress testing.
What are the advantages of a portfolio mortgage?
There are various pros and cons to consider. We have already mentioned that portfolio mortgages make payment and managing finances simpler and can be easier to secure.
It’s also possible to include different property types in your portfolio, such as holiday lets and HMOs.
A big advantage of portfolio borrowing is that it’s easier to use your equity to buy additional property. You can combine the equity you have in a number of properties to use as a deposit for the next purchase.
A portfolio approach can also be helpful if one of your properties is not performing as well as the others. Your more profitable Buy to Lets can compensate for any shortfall.
What are the disadvantages?
As you might expect, the rates on a portfolio mortgage are often higher than on a standard Buy to Let. You may also find there’s a prepayment fee or other charges. If you take out a fixed rate mortgage it would apply across all properties and redemption fees could apply if you sold any property within the portfolio.
Because all lenders are different in how they manage their portfolio mortgages, there can be a lot of small print to work through. This is another important reason to work with a good broker, who will help you understand all the details.