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BTL UK Portfolio Mortgages Explained

BTL UK Portfolio Mortgages Explained

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Many UK landlords are looking at expanding their property portfolios to take advantage of low purchase prices, and many more are set to join the 2.5 million investors and landlords across the UK sector.

Let's look at buy-to-let mortgages for property portfolios, how they work, who can apply for them, and which lenders are offering special mortgage rates for multiple investment properties!

If you need support with securing a BTL portfolio mortgage, or are considering expanding your portfolio and wish to explore the best mortgage options out there, get in touch with Revolution Finance Brokers today.

We work with investors and landlords to secure the most advantageous mortgage products, from across the complete spectrum of UK lenders to ensure your landlord business is as profitable as possible.

Give us a call on 0330 304 3040 or drop us a message at info@revolutionbrokers.co.uk.

Portfolio Mortgages Explained

A portfolio mortgage isn't too different from a standard buy-to-let mortgage - the critical difference is that it covers multiple properties within one portfolio.

This is ideal for investors who are looking to buy several properties at once, want to remortgage their BTL residences through one mortgage provider, or are looking to find cheaper rates on the landlord mortgage market.

How Portfolio Mortgages Work

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.

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 Mortgages

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.

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 info@revolutionbrokers.co.uk.

Can a Landlord Have Multiple BTL Mortgages?

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.

Securing Lending for a Buy-To-Let Property Portfolio

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.

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 a Portfolio Mortgage Lender

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

How Do Portfolio Mortgage Affordability Assessments Work?

Buy-to-let affordability looks at a combination of factors, including:

  • How much rental income you expect to make.
  • Your personal circumstances and whether there is any potential you won't be able to keep up with repayments.
  • The rest of your portfolio and other lendings you have.
  • Your total assets, borrowings, and income.

Some lenders will want to see proof of your income outside of your rental properties; others have no minimum income requirement.

Where no external income minimum exists, this type of lending is called a BTL mortgage for professional landlords.

A good benchmark for a basic rate taxpayer is to work on investing in a property that generates income at 125% or more of the mortgage repayments.

This increases to 145-160% if you're a higher rate taxpayer.

As an indicative example, the associated figures in an affordability assessment may look like this:

Your tax bracket

Mortgage repayment cover required

Example BTL mortgage balance

Interest stress testing rate

Monthly interest payment

Monthly rental income needed to demonstrate affordability

Basic rate taxpayer

125%

£150,000

5.5%

£687

£860

Higher rate taxpayer

145%

£150,000

5.5%

£687

£996

Top rate taxpayer

160%

£150,000

5.5%

£687

£1,100

What is Top-Slicing in BTL mortgages?

Top-slicing is where you use some of your personal income to supplement the anticipated rental income used in the affordability assessment.

This is usually where the expected rent revenue isn't quite high enough to meet the criteria, for the lender to extend an offer for the full amount of borrowing you need.

Whether or not top-slicing can be taken into consideration depends on the policies of the lender.

If you're looking to take out a landlord mortgage and are unsure about whether the projected income will meet affordability assessments, or whether top-slicing is a viable option in your circumstances, get in touch with Revolution Finance Brokers.

Can a Landlord Get a Portfolio Mortgage if they Have Poor Credit?

They can - although the number of lenders who are worth approaching reduces if you have a bad credit history. It all depends on what sort of problems you have experienced, and when they occurred.

A mortgage lender will ask for some details about what occurred and whether the situation has now been resolved.

This helps them to assess whether the issues are likely to be repeated.

Even if even one the below appear on your credit history, you can still secure a portfolio mortgage provided you use a broker to connect with the right lenders:

  • Late payments or defaults
  • CCJs or debt management plans
  • IVA repayment plans
  • Bankruptcy

Revolution Brokers are a specialist mortgage broker and experts in negotiating buy-to-let portfolio mortgages for landlords in any set of circumstances.

Give the team a call on 0330 304 3040 for tailored advice about progressing your borrowing requirements.

Are Some Types of Property Easier to Get a Portfolio BTL Mortgage For?

Standard properties are the most accessible types of investment proposition to finance - this includes traditional construction properties, that are residential terraced, semi-detached or detached, and purpose-built residential flats.

Properties which are more complex to borrow against as part of a property portfolio include:

  • Studio flats.
  • Ex-council properties.
  • Non-standard buildings (i.e. concrete or timber-frames).

When seeking mortgage lending for a non-standard property, it is essential to work with a broker who can negotiate the best terms with the right lenders who we know will be happy to consider your application.

Are There Age Limits on Buy-To-Let Portfolio Mortgages?

The majority of lenders have a minimum age limit of 18 years old. Mature borrowers who are looking for a buy-to-let portfolio mortgage may encounter upper age limits or a maximum amount of time that a lender will be willing to extend an offer for.

However, working with an expert broker ensures that you will secure the right lending with a provider who can process your application successfully.

Revolution Brokers work with several BTL portfolio lenders who do not have a maximum age limit.

Where is the Best Place to Create a UK Property Portfolio?

Your choice of investment area will depend on multiple factors, such as where you live, the areas you like, where you are familiar with, and rental income levels and property purchase prices in those respective areas.

Mortgage portfolio lending is growing in Scotland, as the large variance between Scottish and English property prices becomes more substantial. As an indication, in 2019 the average property price in Edinburgh was £236,900 when compared to £483,000 in London and £124,800 in Glasgow.

It is vital to be mindful of different property acquisition rules in Scotland, and changes in Stamp Duty rates to budget for.

Should I Insure my Property Portfolio?

There is no mandatory requirement, but property portfolio insurance is a valuable asset to protect you from expenses and problems in the future.

Portfolio insurance usually covers buildings and/or contents across multiple premises, which makes it much more streamlined and cost-effective than managing several different policies, each for a different investment property.

If you would like support on choosing the most competitive property portfolio insurance, drop us a message at info@revolutionbrokers.co.uk, and we will be happy to advise.

Expert Support with BTL Property Portfolio Mortgages

Whether you are looking to expand your portfolio, remortgage several properties, or are weighing up your options, Revolution Finance Brokers are on hand to make the mortgage comparison and application processes a breeze.

As fully independent brokers, we work with landlords across the UK to secure off-market terms and interest rates, negotiated to match your specific circumstances.

Send us a message or give our landlord's team a call on 0330 304 3040 for bespoke advice and support.

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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