With the strong investment property market in the UK, there are millions of landlords running a buy to let business with a portfolio of investment properties. Portfolio mortgages are one option to effectively manage a buy to let business and provide streamlined funding support.
How do portfolio mortgages work?
Portfolio lenders offer mortgages to landlords with a buy to let business who have multiple properties within their investment portfolio.
This type of mortgage covers all the properties within that portfolio, rather than having separate mortgages against each.
Business landlord mortgages are an umbrella mortgage, incorporating your whole property portfolio into one account, with lending from one provider. This makes it much easier to track, secure economies of scale, and ensure you are getting the best rates available for your buy to let business.
Each buy to let mortgage company has their requirements, but typically they will consider offering business landlord mortgages to investors with at least four properties.
Understanding the buy-to-let property business
Portfolio mortgages fall into the same category as buy-to-let mortgages, and so are regulated by the Prudential Regulation Authority (PRA). Various rules apply to portfolio lenders, which impact how they assess each application for lending.
The process of securing a mortgage against a buy to let business can be lengthy, but Revolution Brokers can help to streamline this process.
We will help you understand the affordability criteria before you apply, and recommend specialist buy to let mortgage companies who can offer you the lending you require.
Affordability assessments for buy-to-let mortgages
Business landlord mortgages rely on fairly strict affordability criteria, which look at more than the rental income and mortgage costs. Lenders also need to consider your tax circumstances, since the tax regulations for buy-to-let landlords have become stricter and could impact the affordability of the loan.
This assessment is called stress testing and considers whether you will still be able to afford your mortgage repayments if the interest rate increases during the loan term.
Who falls under the term portfolio landlord?
Most portfolio lenders will lend to landlords who have four or more investment properties that are mortgaged.
This means that portfolio mortgages are not available if you own three properties or less, or own more than four properties but less than four are mortgaged.
What factors do buy to let mortgage companies consider?
Different lenders have their criteria, but when assessing an application from a buy to let business they will look at:
- How many properties you own
- What the mortgage lending is like on each
- How experienced a buy to let landlord you are
- Your business stability including assets and liabilities
- The expected cash flow from your portfolio
- Other revenue streams
The criteria used vary widely, so it is essential to use an expert in business landlord mortgages before you proceed with taking out a portfolio mortgage.
Call Revolution Brokers on 0330 304 3040 or drop us an email at email@example.com, and we will ensure you have the most cost-effective portfolio mortgage option in place.
Frequently Asked Questions
Can I have multiple buy-to-let mortgages?
Yes, you can - there aren't any limitations to how many mortgages you can have.
Some lenders will have their restrictions, but Revolution Brokers work with many specialist buy to let mortgage companies who understand the market and can provide competitive offers to help your buy to let business flourish.
The most crucial factor is making sure you have up to date information about each property in your portfolio, what it is worth, what it is valued at, and what your next 12 months of rental income look like.
What are the tax rules on a buy to let business?
The tax rules for property investors tend to change each new budget, and so lenders need to incorporate this into their affordability assessments.
For example, a property purchased as an additional home, or as a second or subsequent property to let will attract a higher stamp duty rate.
There are also tax implications with changes to tax relief on buy-to-let income. Previously, tax relief was available on the interest cost of buy-to-let mortgages, meaning that these costs could be deducted from profits to lower the income tax liability.
This has now changed, and this tax relief is no longer available. The change will likely increase the tax cost for portfolio investors; however, it does not impact commercial landlords.
If you are considering expanding your property portfolio or taking out a new mortgage through a portfolio lender, then it is critical to understand the tax implications and costs.
Is a portfolio mortgage better than lots of separate buy to let mortgages?
There are lots of ways to structure a buy to let business, and the most appropriate for you will depend on your circumstances and your portfolio.
For example, you might choose to set up your business as a limited company rather than as a sole trader, which might produce tax efficiencies.
Contact Revolution Brokers today to see how business landlord mortgages stack up, and whether you can make significant savings in your mortgage interest costs.
Is it better to take out portfolio mortgages as a limited company?
It could be - although this all depends on your portfolio and your buy to let business. There are different types of limited company, generally separated into a trading company or a special purpose vehicle (SPV).
Many buy to let businesses choose to set up an SPV since more mortgage lenders accept applications from this type of business.
Some lenders will apply a more generous stress test to a limited company than they would for an individual applicant. This is because a limited company tends to be more tax-efficient, so there is less risk that changes in tax regulations would render the portfolio mortgage unaffordable.
Is a portfolio mortgage cheaper than individual mortgages?
Potentially, yes. If you have multiple mortgages with multiple providers, it can be challenging to keep track of the costs.
Consolidating that lending into one portfolio mortgage may reduce the overall costs you are paying, given that the borrowing will be of a higher value and potentially at a much lower LTV ratio.
Can I have multiple buy to let mortgages through a limited company?
In the same way as for a buy to let business run as a sole trader, there aren't any regulations that limit the number of mortgages you can have.
However, some lenders will have limits on their total appetite for exposure and may be reluctant to offer to lend for a new investment or remortgage if you have multiple other investment properties.
What is the most cost-effective way to finance my buy-to-let portfolio?
There are lots of factors to consider when deciding the best route to finance your investment properties. These include:
- How much deposit you have available - the minimum for a buy-to-let mortgage is usually between 15-25%.
- Whether you intend to remortgage an existing property to raise the deposit finance.
- How much equity you have in your portfolio, or will have in a new property investment.
- What LTV value you can borrow at, and whether you have sufficient equity to meet this.
Usually, it is easier to secure mortgage lending at a lower LTV, since the risk to the lender is reduced. If you need to borrow at a higher LTV ratio, you will generally expect to pay a larger deposit and have less competitive terms.
This often depends on your experience, credit rating, age and purpose of borrowing. Most mainstream lenders offer as high as 95% LTV for residential properties but cap this at 85% for commercial purchases.
Who is the best buy to let mortgage company?
Portfolio mortgages are a specialist product, and it is vital to deal with a buy to let mortgage company who understand this sector.
There are multiple lenders within the market, all with individual criteria and product offers. You can even secure portfolio mortgages through high street lenders, although the rates and conditions may be prohibitive when compared to specialists within the field.
- NatWest offer portfolio mortgages for 4+ buy to let properties, but will not lend to limited companies. They offer lending dependent on landlord experience, whether you use a letting agent, and what you plan to do with the portfolio in the future.
- Santander only offers portfolio mortgages for remortgages without needing to raise capital.
- Virgin offer business landlord mortgages, but limit their lending to 5 properties in the same postcode. Applicants must have at least 24 months experience, and while personal income must be verified, it will not be considered as part of the affordability assessment.
- Barclays offer business landlord mortgages, with an in-depth evaluation of individual and rental income; existing credit, portfolio, current occupancy levels and future need for funding.
These terms might not be suitable for all buy to let businesses, and often more competitive rates can be achieved from niche lenders who specialise in the market.
How do portfolio lenders calculate affordability?
Affordability is an essential part of any mortgage application. For portfolio mortgages, this will look at your circumstances, other lending, and how much rental income the new property will achieve.
Some business landlord mortgages will require you to demonstrate a minimum income outside of the rental income, and others will not.
Most lenders will consider what tax bracket you fall into. For basic rate taxpayers, or investors purchasing through a limited company, the rental income generated must be a minimum of 125% of the mortgage costs. Higher rate taxpayers will often need to demonstrate income of 145-160% of the mortgage repayments.
The difference exists because your tax rate will change the net income you receive from your buy to let properties. For example, on a £150,000 buy-to-let mortgage balance at a stress testing interest rate of 5.5%, the monthly repayments would be £687, so to qualify:
- A basic rate taxpayer would need to have 125% rental income of £860
- A higher rate taxpayer would need to have 145% rental income of £996
- A top-rate taxpayer would need to have 160% rental income of £1,100
Can I get a portfolio mortgage if I have bad credit?
You can, although your choice of lenders will be smaller and you may pay a higher deposit and higher interest rates.
A lot depends on how long you have had credit problems for, how long ago this occurred, and what your current circumstances are.
If you are struggling to secure a buy-to-let mortgage or a portfolio mortgage due to credit issues, give Revolution Brokers a call on 0330 304 3040. We will work to find the most competitive deals from lenders who will be happy to extend a mortgage offer to you.
What sorts of property can be mortgaged with a portfolio mortgage?
Buy to let business mortgages are available on most types of property, and most types of building construction.
There may be limitations with some lenders, who are reluctant to lend against properties such as:
- Studio flats
- Ex-council properties
- Unusual constructions
If you are looking for a buy-to-let mortgage for any of these more niche properties, drop us a line at firstname.lastname@example.org, and we will be delighted to help!
Are there restrictions on who can apply for a business landlord mortgage?
There are no specific restrictions, but most lenders will not consider an application from anybody aged less than 18 years old. There are also restrictions with some lender criteria in lending to retirees, or applicants over a certain age.
This usually depends on the length of the mortgage term, and the age the applicant will be at the end of the term.
Where in the UK are the best property portfolio opportunities?
Landlords decide on where to invest for several reasons - you might wish to have your buy to let business close to where you live, or within a specific region that you are familiar with.
London is always a lucrative location for property but can be exorbitantly expensive in comparison with other parts of the country.
Increasingly, buy to let landlords are looking further afield, and investing in Northern England and Scotland. In these areas, house prices are significantly lower than in London and the southeast, with strong demand for rental property in the busier cities.
Do I need to insure my buy to let property portfolio?
While it isn't mandatory, portfolio insurance is an option if you want to insure all of your investment properties comprehensively.
This can be much cheaper than standalone insurance for each property since you gain economies of scale from rolling your portfolio into one insurance premium.
Portfolio insurance includes all of your properties, and any contents or other insurances you wish to add, which is much simpler and easier to renew each year.
If you need advice about finding a portfolio insurance expert, applying for a portfolio mortgage, or any aspect of the buy to let property market, give Revolution Brokers a call on 0330 304 3040.