Buy to Let Portfolio Mortgage
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Buy to Let Portfolio Mortgage
Oliver Potter from Major Money Matters explains how a Buy to Let portfolio mortgage works.
How does a mortgage for a portfolio landlord differ from a regular Buy to Let mortgage?
Lenders classify a portfolio as four or more mortgaged Buy to Let properties. They like to take a view of the whole portfolio when you’ve got four or more.
With less than four Buy to Lets, they’ll assess it on an individual property basis. You might have three properties and you want to remortgage one of them – they’ll just look at that mortgage.
When you’re a portfolio landlord, they’ll want to see what the actual portfolio is doing. It can actually be beneficial – if you’ve got a bigger mortgage on one property and a smaller one on another, it can work out to your benefit.
There can be slightly more underwriting and different stress testing, and lenders will want to see property schedules. These detail exactly what properties you’ve got, the mortgages, what they’re being rented out for, and also what level of experience you’ve got.
Most people have sufficient experience in being a portfolio landlord. It’s very rare to suddenly inherit 10 properties – although that would be lovely!
What are the eligibility requirements for a portfolio landlord mortgage?
To be classified as a portfolio landlord, you need at least four mortgaged Buy to Let properties. Some Buy to Let lenders treat portfolio landlords differently to standard landlords.
There may be a minimum income requirement, but usually rental income is the main focus. That’s not usually difficult to pass.
Some lenders like two to three years’ experience as a landlord, but portfolios are usually built over a number of years. It would be very stressful trying to buy 10 properties at once.
There are also standard criteria around affordability and credit. Most portfolio landlords are eligible for mortgages, though.
What documentation is typically required to apply?
There’s the standard Buy to Let documentation, which will include tenancy agreements.
Some lenders will want to see your SA302s – commonly known as tax calculations – to see the income being produced.
The main distinction for a portfolio Buy to Let mortgage is that you’ll need a property portfolio schedule. This is a list of your properties, what they’re worth, the mortgages on them and rents you’re getting. Then we can work out affordability.
Potentially we may need personal business bank statements – they are not commonly required but can be, depending on the lender.
Buy to Let underwriting is usually less intense than for a residential mortgage.
What is the maximum number of properties that can be included in a portfolio?
It really depends on the lender. High street lenders usually have a cap on the number of properties you can have with them, perhaps between 10 and 20.
With other lenders there’s no universal limit. Some lenders have no cap whatsoever and you can have 1,000 properties with them if you wanted to – although I haven’t seen many thousand property portfolio landlords!
Essentially, we’ll work out what you’ve got, who your mortgages are with, and see what that lender-specific cap is. Depending on that, we may look at lenders with higher portfolio limits.
Do you need to put down a deposit for a portfolio mortgage?
Yes. There are the same standard rules as for a regular Buy to Let mortgage. Usually it’s a minimum of 25% deposit, but it can be slightly less. My recommendation is a minimum of 25% as this gets you slightly better rates.
It can vary with what the Buy to Let is – for a holiday let, an HMO, a multi-unit block or semi-commercial lenders might want slightly higher deposits. For standard Buy to Let properties, even if it’s part of a portfolio, you’ll need at least 25%.
As always, the more deposit you put down, the better rate you usually get.
What eligibility criteria do lenders consider when evaluating a landlord’s experience and track record?
They like to understand how long you’ve been in the landlord space – how long you’ve been letting properties for. If you’re a portfolio landlord, it’s likely you’ve been in the property market for a number of years. Usually that’s acceptable and most people are eligible.
Lenders look at how many properties you own and how they’re managed. They also assess the mortgages you’ve got on each property and how much it’s worth. Usually they’ll want to look at the whole portfolio, which can often be better. If you’ve got properties with a slightly higher Loan to Value, they’ll compare that to properties with slightly less mortgage on – they’ll look at it as a whole, essentially.
Credit history and financial stability are also a factor. If the worst were to happen from a landlord’s perspective and the rent wasn’t paid, lenders want to know how you would cover the shortfall.
Standard credit still applies. Any arrears, defaults, county court judgments (CCJs) or past issues can affect where we look for a mortgage. It’s best to see what we’ve got and work from there.
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How do lenders assess affordability?
On a standard residential mortgage, lenders look at the income and give you a multiple of that. Affordability can also be affected by committed expenditure, credit cards, et cetera.
Buy to Let mortgages are more assessed on rental coverage. That’s the rental income you’re getting – or the valuer assumes you’re getting – compared to how much the mortgage payment will be.
Some lenders assess aggregated affordability across a portfolio. So 10 properties might be worth a certain total, with a total mortgage amount and combined rental income. Some will look on an individual basis.
Personal income can be considered in some cases, but most lenders won’t have a minimum income. It’s more for shortfalls. There’s also something called top slicing, where if we’re falling slightly short on rental affordability, some lenders will put your other income towards affordability. These days not many people top slice, but it is an option.
Does a portfolio mortgage have to be through one lender or can it be different lenders?
It’s completely up to you – and also what’s the most cost-effective. Some lenders will take a whole portfolio and give you potentially a bespoke rate, or a rate that’s predetermined. Some existing portfolio landlords will have a mixture of different lenders.
If they’ve got 10 properties, perhaps three will be with NatWest, three with Santander, three with BM Solutions and so on. It completely depends on what’s cost-effective, the affordability and the client’s preference.
Landlords often prefer to diversify as it usually gives better cost-effectiveness and flexibility.
What happens if a landlord’s existing property or properties do not meet lending criteria?
There are three main options. One is to remortgage, or you may move some equity around to borrow more on one and less on another. Alternatively you could sell the property. That’s probably the last resort.
A lender might decline the application or just reduce the amount of borrowing offered. Perhaps we want £300,000 but the rental coverage isn’t sufficient – so the lender offers £280,000.
You could either refinance other properties to meet the shortfall or potentially you may have funds of your own to put towards the borrowing. That’s another option.
In more niche scenarios, lenders might ringfence an underperforming asset and just look at the rest of the portfolio if it’s quite strong. If certain properties perform better than others, different borrowing can be used. If the lender can see it’s a strong portfolio with one outlier, they might understand and be less harsh.
What types of properties can be included in a portfolio?
Portfolios have become much more diverse than they used to be, in my opinion. In the past people tended to go for standard Buy to Let, renting a house out to a single family or single tenant.
Now, portfolios can be a mixture of anything. That might include single lets, plus Houses in Multiple Occupation (HMOs) rented out to multiple people by the room. There could be multi-unit freehold blocks (MUFBs) where a house is split into separate flats.
There could even be semi-commercial. We’ve had people who own blocks with flats above a cafe or shop – something with a commercial element below. The lenders available to us really depend on that split. Some lenders like HMOs, student lets and holiday lets while others don’t.
It really depends. Buy to Let has become much more diverse to meet profit margins and protect landlords’ assets. The main thing is that a property still has to be lettable. It can’t be a shell with no kitchen, no running water and no bedrooms. That’s the only thing that lenders won’t consider.
Are there any additional fees or charges?
There may potentially be valuation fees on each property you’re looking to remortgage. Some lenders cover the cost of that, some won’t. Fees are paid upfront before the valuation takes place.
There are usually arrangement and product fees – which are essentially fees for borrowing the lender’s money. Lenders will have two sets of products: one with a higher product fee and lower rates, and one with a lower fee and higher rates. We’ll talk to you about the total cost. Fees can be added to the loan so you don’t have to pay them upfront.
Then there are legal costs for solicitors, who may need portfolio expertise depending on what we’re trying to do. Costs vary depending on whether it’s a purchase or remortgage.
If it’s a remortgage, some lenders may cover the cost – or some of it. If you are placing a whole portfolio with a lender, there could be portfolio management fees – but that’s usually more niche. As a brokerage, we don’t charge any broker fees, so there’s one less fee there.
Are there any limitations on the location of properties for a portfolio landlord mortgage?
UK lenders only really like UK-based property. If you’ve got five properties in the UK and five in Spain, UK lenders won’t be willing to lend on the Spanish ones. You could raise money in the UK and then go and buy property in Spain, however. [How To Get A Spanish Mortgage 3 Ways to Finance Spanish Property Investment from UK]
Some lenders don’t like certain postcodes – but that’s quite rare. Most lenders are happy with every postcode.
There’s also something called exposure. If there’s a block of 40 flats and Nationwide already has 50% of the flats mortgaged to them, that lender may not want to take on more risk for that block. If Halifax then took 25% and someone else took another 25%, the risk is better spread.
Limitations are quite rare, but it can happen. We’d just go somewhere else, essentially.
What else do we need to know about getting a Buy to Let portfolio mortgage?
There are the tax implications. I can’t give tax advice in my role, but it is worth talking to an accountant or a tax advisor to make sure you know where you lie on that front.
I’m sure portfolio landlords will be aware, but there are obviously implications of renting properties out, so make sure you understand the running costs. Structuring is important – many landlords run limited companies so you need to look at that.
Use a broker that is experienced in this field. You can get into complicated, deep waters, so it’s worth having professional advice on the most suitable approach.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE SOME FORMS OF BUY TO LET AND HOLIDAY LET TO BUY MORTGAGES.