How a Portfolio Mortgage Works
This type of mortgage covers all of the properties in a portfolio, under one lending 'umbrella'.
That means that you manage one mortgage account, rather than multiple accounts for every individual property within your portfolio.
It also means you have:
- One point of contact for your landlord lending.
- One monthly account to manage.
- One set of regular repayments.
- One statement to review and keep track of.
Typically, this works by creating a limited company to manage ownership of your portfolio.
All of your costs and finances are then put through the business, which ensures you can take advantage of tax-efficiencies available, as well as streamlining your property business.
Usually, portfolio mortgages are available to landlords with four properties, or more.
Regulations for Multiple BTL Properties
The rules around lending for multiple buy-to-let properties depends on your lending provider. They're also influenced by the local authority licensing requirement in your region, which can vary across the UK.
Most lenders of this type of finance are regulated by the Bank of England's Prudential Regulation Authority (PRA), and therefore are subject to their rules.
PRA regulations determine the underwriting processes required, so each lender must undergo affordability testing to higher criteria, and run the requisite checks before offering portfolio landlord mortgages.
These increased checks make it laborious for investors to collate the required documentation, complete each stage of the application process, and then finally wait for a decision.
Thus, Revolution Brokers represent a growing number of landlords who recognise the advantages of portfolio mortgages but appoint a professional broker to manage the application process on their behalf.
Affordability Checks for Landlord BTL Portfolio Mortgage Applications
Previously, landlord affordability was based on the expected rental income from the mortgaged properties, and what sort of deposit was available.
Affordability assessments are now more complex, and require rigorous assessments to ensure lenders are providing financing responsibly.
Your tax liability comes into consideration since landlord taxes have risen. So any mortgage lender needs to verify that you will be able to keep up with your mortgage repayments.
As a typical illustration:
- A BTL mortgage lender would like to see rental income at 125% of the mortgage repayments for a basic rate taxpayer.
- For a higher-rate taxpayer, they would need to see rental income cover of more like 145 or even 160%.
- In addition, an application will be stress tested. This means that the lender will speculate about what might happen if interest rates increase to 5%, or 5.5% and check if you'd still be able to afford your mortgage.
Which borrowers are considered portfolio landlords?
You'll usually be considered a portfolio landlord if you own at least four properties.
Landlords are not considered portfolio landlords if:
- You have three investment properties, rather than four.
- You own more than four properties, but three or fewer are mortgaged.
If you are considered an eligible portfolio landlord for a buy-to-let mortgage application, your lender will then go through underwriting checks, and portfolio mortgage stress testing.
Affordability checks ensure that your finances are stable and that you can afford to take out the lending.
The exact affordability criteria vary between lenders, but will always consider factors such as:
- How experienced you are as a landlord.
- What mortgage lending you already have.
- Your other debts, assets and tax liabilities.
- What rental income your property portfolio is expected to generate.
- Other revenue streams.
Outcomes of stress testing will vary between lenders. For example, one might be happy to extend lending against your portfolio provided four of five properties generate sufficient rental cover to keep up the mortgage payments, but one doesn't.
Another lender might reject the same application if they have stricter criteria.
It is therefore always ideal to work with an experienced broker such as Revolution Finance Brokers.
We consult with you before any lending applications are made to understand your circumstances, your portfolio, and your borrowing requirements. Then we get to work analysing the market for the most competitive deals, and the lenders we know are most likely to be able to approve the lending you need.
Give us a call on 0330 304 3040 or send the team a message at email@example.com.
Can I Get a Buy to Let Portfolio Mortgage for Multiple Properties?
You can indeed; there are no limits to how many mortgages you can take out, provided you can afford to make the repayments.
Some BTL lenders won't consider extending multiple mortgages, and others will have rules about how many existing mortgages you can have for them to make an offer.
We work with multiple BTL specialist lenders who are happy to consider applications from landlords with large portfolios.
One of the crucial factors to expanding your property portfolio is to have up to date records of each property, the income it generates, and any borrowing owed against it, as any prospective new lender will need to be able to review this information.
Why Do Tax Brackets Impact BTL Mortgage Affordability Assessments?
Tax matters because changes to tax relief on mortgage interest have had a significant impact on the profit margins some landlords make on their properties.
This adds a layer of complexity to calculating affordability since lenders need to assess additional costs, including the 3% additional Stamp Duty levied on property investors.
The change to tax relief means that:
- Previously, landlords could claim their mortgage interest as an expense directly deductible from their rental income. This reduced their declarable income, and therefore the tax bracket they fell into, as well as reducing the total profit and the amount of tax payable.
- From April 2020, this has changed, so mortgage expenses are not deducted from rental income. This means many landlords have slipped into a higher tax bracket, so even when all costs have been removed to arrive at a profit figure, they'll need to pay a higher percentage of those profits in tax,
These changes only apply to residential BTL landlords, and tax specialists can help mitigate the overall tax charges and help you structure your portfolio most efficiently.
How To Secure a Mortgage for Multiple Properties
Suppose you wish to take out mortgage lending for more than one investment property. In that case, the ideal process is to consult with an expert mortgage broker experienced in the property portfolio lending market.
One option is to incorporate a limited company to manage the ownership of your properties. Typically this is either as:
- A normal trading company
- A special purpose vehicle company (SPV)
Many landlords choose to set up an SPV.
BTL Mortgages for Limited Companies
As more landlords use SPVs to manage their portfolios, more lenders are offering less strict stress test criteria for companies taking out portfolio mortgages.
This is because companies have more advantageous tax efficiencies available to them than individual landlords, and won't fall into any higher rate tax brackets.
Is It Possible to Have Multiple Limited Company Landlord Mortgages?
Theoretically, yes, there isn't any limit on how many company mortgages can be taken out.
However, as with individual landlord mortgages, each lender will have their own criteria on how much exposure they consider acceptable for one company and may limit the number of mortgages, or the number of properties, they are willing to lend against.
How Can I Find Lenders With Competitive Portfolio Mortgage Rates?
Multiple mortgage lenders will extend lending against portfolio mortgages. This type of borrowing helps landlords to manage their finances and potentially invest in a more extensive portfolio with fees and repayments simplified.
The considerations you should think about when it comes to BTL portfolio mortgages are:
- Deposit: for non-cash property investment, you will require a deposit of at least 15% and sometimes a minimum of 25%. This can be raised by remortgaging your existing property.
- Equity: Should you be remortgaging to raise a deposit to expand your portfolio, you'll need to know what equity you have in that property; i.e. how much you own and how much you owe.
In property investment, lenders talk about the loan to value rate or LTV. This ratio is the amount of lending as a proportion of the total property value.
If you do decide to remortgage your main home to raise money for a new BTL mortgage, your lender might offer as high as a 95% LTV.
Portfolio Mortgage Lenders LTV Example
As an example:
If your residential property is worth £500,000, and you have equity of 50% with £250,000 owed on a mortgage, you might choose to remortgage and use that £250,000 towards buying a new rental property.
With a £250,000 down payment, you would be likely to be able to buy a higher value investment property, with an LTV of up to 95%.
In general mortgage lenders prefer a lower LTV which limits their exposure. The higher the LTV, the higher the interest rates and fees payable to the lender.
Other factors that impact the offered LTV include:
- Your age
- Your credit history
- The reason for the borrowing
On residential mortgages, the standard LTV is 95% lending with a 5% deposit, but for buy-to-let properties, the standard is a maximum of 85% lending with a 15% deposit.
Choosing the Right Portfolio Mortgage Lenders
An increasing number of lenders offer portfolio mortgages, each with different criteria that an application has to meet to be successful.
Some high street lenders also offer this sort of product, although the lending criteria may not be as advantageous as through specialist lenders.
Typical lending criteria include:
- Natwest: applicants must have four or more properties, not held in a limited company. Assessments depend on the landlord's experience, whether properties are let through an agent, and expectations for expanding or reducing their portfolio in the future.
- Santander: do not generally lend against portfolio mortgages, unless the applicant is for a remortgage outside of raising capital, and meets the bank's transitional arrangements eligibility criteria.
- Virgin: landlords must have at least two years of experience, and a maximum of five properties within the postcode area. Personal income may not be considered within the affordability assessment, although this information must be verified.
- Barclays: Individual income will be considered as well as rental income and ongoing expenses. The assessment includes looking at how fast the portfolio has been expanded, capital appreciation values, the quality of tenants in place, occupancy levels, whether properties are let through an agent, the property portfolio strategy and what funding requirements the landlord expects to have in the future.
Each lender is different; some, for example, will not lend on multiple occupancy properties as part of a portfolio. Others will have a limit on what proportion of the portfolio this type of property can be.
If you are looking for a portfolio mortgage and would like to find a specialist lender who meets your criteria, get in touch with Revolution Finance Brokers.
We are wholly independent and therefore have access to the whole of the lending market to find the most competitive deals and advantageous terms for your lending requirements.