Portfolio Buy to Let Mortgages
Buy-to-let property has the potential to be a great investment opportunity, and especially attractive to people who prefer tangible assets rather than stocks and shares. However, it is worth noting that the financial landscape is changing, and so it is worth considering how a portfolio of properties might best be managed.
Who is A PORTFOLIO LANDLORD?
As soon as you own more than one Buy-to-Let property, you could be regarded as a ‘portfolio landlord’ – someone who is making their income from rent charged to tenants living in a range of properties – although the general consensus is that you should have mortgages on four or more Buy-to-Let properties to be officially classified as such.
When applying for a Buy-to-Let mortgage, lenders may determine your status as a portfolio landlord in two ways – either via ‘sole applications’ or ‘joint (or more) applications’ – while running their assessment and calculations for lending.
Sole applications – if you own four or more mortgaged Buy-to-Let properties (including the one you are applying for), the lender will class you as a portfolio landlord, but they will base their mortgage calculations on just this property.
Joint (or more) applications – if you are applying with a partner, who may co-own some or all of your investment properties and perhaps others separately, the lender will look at the loan-to-value ratio of the total number of properties in your collective portfolio, including the property you are applying for.
If in any doubt about which lenders may have the most appropriate criteria and products for you either solely or jointly as a portfolio landlord, you would be best advised to talk over your ambitions and requirements with an expert mortgage broker with experience in sourcing Buy-to-Let mortgages. Give us a call today!
What is a buy-to-let portfolio mortgage?
Buy to let portfolio mortgages are intended for those landlords who have – or who plan to have – more than one buy-to-let property.
Although a portfolio mortgage can incorporate mortgages for several properties, some or all of which might attract different interest rates, it is treated as a single mortgage account by the lender. Rental income and the loan-to-value ratio are averaged out across the portfolio, meaning any surplus may be leveraged to extend the portfolio.
Say, for example, that the total value of the portfolio is £2.5 million and the outstanding loan amount is £1.5 million. Assuming that the maximum loan-to-value ratio of the total portfolio is 75%, that means you potentially have access to additional borrowing of £375,000 which you can use to extend your portfolio.
Say you purchase a property worth £200,000; once that has been added to your portfolio, you still have available credit of £325,000. That is derived from a new total portfolio value of £2.7 million (£2.5 million plus the new property valued at £200,000) with an outstanding total loan amount of £1.7 million (the previous loan amount of £1.5 million plus the mortgage against the new property).
The more properties are owned, the more any risk is spread. It becomes easier not only to draw on the revolving credit facility the portfolio mortgage offers, but also to accommodate periods when rental properties are untenanted; the overall income from the tenanted properties will make up the shortfall.
Mortgage Broker for Portfolio Landlords
Anyone wanting to know more about portfolio landlord mortgages should seek specialist advice. Here at Just Mortgage Brokers we have a team of specialists with the necessary depth and breadth of experience to guide you through your options and find the best solution for your needs. Contact us today for expert advice with regard to managing your buy-to-let portfolio.
HOW MANY BUY-TO-LET PROPERTIES CAN I HAVE?
There is actually no technical or legal limit to the number of mortgaged Buy-to-Let properties you can own within your business as a portfolio landlord. Any restrictions you might face will be down to your own personal financial circumstances, the level of debt you are able to manage and simply the amount of time and energy you are able to spend on administering and maintaining your properties.
However, most lenders will want to minimise their exposure to risk, and so will put a limit on the number of properties they are willing to lend to you against, and likely also the number of mortgaged properties they want to see in your portfolio as a whole.
For example, a lender will perhaps provide mortgages for a maximum of five properties to any household (rather than individuals, to avoid multiple applications in the name of spouses or other family members), and could set a maximum limit of ten mortgaged properties in a portfolio (total with them and other lenders).
Of course, these limits and other criteria will vary from one lender to the next – you may find some are more flexible than others on the number of properties they will allow, or if they allow more properties, they might balance this with requiring more equity, or a larger deposit, or by imposing a higher interest rate.
If you want to find out more about individual lenders’ criteria, then a specialist mortgage broker will have the market overview and in-depth knowledge to be able to pinpoint exactly which lender can most closely meet your needs. Get in touch with our team today to arrange a free, no-obligation initial discussion.
WHAT ARE THE RESTRICTIONS FOR A PORTFOLIO LANDLORD?
In September 2017, the government introduced more Buy-to-Let regulations, setting out more stringent rules for lending to portfolio landlords with four or more properties under their ownership. Mortgage companies are required to run a full analysis of the landlord’s whole portfolio as part of the lending process. This is to ensure that they are not becoming over-committed and are allowing enough contingency in their anticipated rental income and cash flow to cover eventualities such as a property lying empty for an unexpected period.
Depending on the lender’s criteria, this analysis might also include a landlord’s other assets, the property’s location, the landlord’s overall experience and other sources of income, other commitments, etc. This is an effort to curb any higher-risk lending. Where banks lose money, landlords lose their business and people lose their homes.
These regulations have led many lenders to place limits on the number of properties they are willing to lend against with any individual borrower (or their household). For example, a landlord might apply for a mortgage for a property that looks like a strong investment, but if the lender sees that they already have a portfolio of ten properties where the rental income is only just covering their costs, and that their finances are likely to be stretched to a tipping point, then the mortgage will probably be turned down.
Many lenders now place a limit on the number of mortgages they will provide to a Buy-to-Let landlord of five, and it’s also common to see lenders impose a limit of ten mortgaged properties (with any landlord) as a whole. As ever, the restrictions on mortgaging or remortgaging will vary from lender to lender, so you should research what rules each provider imposes before making a borrowing decision.
MORTGAGE LENDERS FOR PORTFOLIO LANDLORDS
In the past, if you were a portfolio landlord building a business around the rental income from four or more properties, you would have had to go to a specialist, niche-market mortgage lender in order to obtain the mortgage deals to meet your needs. However, in more recent times, investing in a Buy-to-Let property has become far more mainstream, and portfolio landlords can now access mortgage products from lenders on every point of the spectrum, from the high street to online and the specialist market.
There is now a huge range of products available to Buy-to-Let portfolio landlords from a wide variety of lenders, each with their own rules, criteria for lending and methods of assessing a borrower’s suitability for a mortgage. Doing your own research into every product on offer – and the offers or restrictions that individual lenders have in place to reduce their risks when lending to portfolio landlords – would be a highly exhaustive and time-consuming task. In addition, owing to the dynamic nature of the mortgage market, you’ll find that existing deals may disappear, new offers or products will be launched and interest rates will fluctuate.
The other factor to consider is your own circumstances as a portfolio landlord. The most suitable lender for you might vary according to your experience, portfolio size, amount of equity in your portfolio, your cash flow, cash reserves and the deposit you are able to supply, as well as the location, size and condition of the property you want to buy next.
Bearing all this in mind, it would be impractical to list what we consider to be the ‘best’ lenders in general for portfolio landlords, as so much depends on the time and the circumstances. To discover the right lender to suit your situation, targets and requirements, we’ll need to go over your current position and get a thorough overview of where you stand. Contact us now to book a free, no-obligation initial discussion.
HOW DO I REMORTGAGE MY BUY-TO-LET PORTFOLIO?
You might want to remortgaging one or multiple properties in your Buy-to-Let portfolio for a number of reasons, for example: to exploit the increase in value of the property to raise capital to invest in another property, or to finance alterations or improvements to properties in your existing portfolio, to consolidate your debts in other areas, or to simply take advantage of a better interest rate elsewhere. The reason for remortgaging may have a bearing on how your remortgage application is treated by the lender.
If your aim is to make improvements, then most are happy to remortgage so you can release some of the equity in your property to do this, especially if the work will increase the property’s value and/or rental revenue.
If you are looking to use the cash from a remortgage to fund the deposit for a further property, then a lender will need to do an assessment of your overall exposure, and will likely have an issue if you already have five mortgaged properties with them, or a total of ten across various lenders in your portfolio.
Using a remortgage to consolidate debts can be a sensible decision, as the interest charged on a mortgage is usually lower than that for a loan. However this may not be the case with a mortgage on a Buy-to-Let property, and many lenders may shy away from funding a release of equity for this purpose, as it is deemed a higher risk.
There are, of course, other reasons you may want to remortgage, and in all cases, especially when you’re looking to remain in a competitive interest rate rather than slip onto the lender’s standard variable rate, you should talk over your plans with an experienced mortgage advisor. They will be able to look at your ambitions in context of the current mortgage market, and make recommendations for the lenders and products that will be best suited to your requirements moving forward. If you are unsure about your options, don’t hesitate to get in touch with a member of our team today.
Tax changes that affect buy-to-let landlords
As of April 2017, changes to taxation announced in the government’s 2015 Budget began to be phased in. These are likely to have an effect on cash flow and overall profitability for landlords, especially those with large portfolios. By 2020, landlords will only be able to claim tax relief for mortgage interest at the basic rate of 20%. This replaces the system whereby higher rate (40%) and additional rate (45%) taxpayers were able to claim tax relief for mortgage interest payments on buy-to-let properties at their prevailing tax rate. The change is being phased in gradually and is already underway.
At the same time, changes are being introduced to corporation tax. In the 2017 Budget it was cut to 19% and it will drop again to 17% in 2020. If you choose to operate your buy-to-let business as a limited company, then that rate will apply to annual profits up to £300,000.