Buy to Let Portfolio Mortgage

Podcast approved by The Openwork Partnership on 18/09/2024.

How does a mortgage for a portfolio landlord differ from a regular Buy to Let mortgage?

If you’re a standard landlord with one, two or three properties in your portfolio, lenders will assess the individual property rather than the entire portfolio.

If you’re more of a professional landlord, with four properties or more, not only do lenders want to assess that the individual property is more than affordable, they will assess the entire portfolio. They make sure that you’ve got more than enough income to cover all of the portfolio’s expenses – and also make a profit.

What are the eligibility requirements for a portfolio landlord mortgage? What documentation is typically required?

The documentation required is not too dissimilar to a standard mortgage application. You need, for example, your ID, proof of deposit, proof of income and bank statements. It’s exactly the same as a standard Buy to Let purchase.

The only difference is that a lot of lenders will want to see a property portfolio schedule, which is a breakdown of each individual property, the rental income, the mortgage payments, and how much equity you’ve got tied up in it.

They dig a bit deeper into the individual properties and the portfolio as a whole, as well as the standard stuff that they’d ask for with a normal Buy to Let.

What is the maximum number of properties that can be included in a portfolio?

This massively depends on lenders. Some lenders have a maximum as low as four. The second you become a portfolio landlord, a lot of lenders will instantly discount you and no longer lend. Other lenders might get to eight or 10 properties before they stop lending any further to you.

There are lenders that specialise in this lending to people with huge portfolios. So there is no real maximum if you’re looking at the right lenders who specialise in portfolio landlords. Because of that, you could grow your portfolio to an unlimited level and they’d still be happy to lend to you, subject to everything stacking up.

Do you need to put down a deposit as a portfolio landlord?

It depends what you’re doing. If you’re remortgaging a property you already own, then no, you don’t need a deposit. However, if you are looking at buying a brand new property, then you would need to put a deposit down on that.

Most lenders need you to have a minimum of 25%. Some will lend to you at a slightly higher Loan to Value, with a lower deposit, but the interest rates are a lot higher. It could be harder to make the affordability stack up, unless you’ve got a really good property to purchase.

What eligibility criteria do lenders consider when evaluating a portfolio landlord’s experience and track record?

If you’ve been renting out a property for a minimum of six months, that ultimately opens the doorway to the majority of lenders. They will class you as an experienced landlord, even if it is just the one property.

Some other lenders want you to have renting a property out for at least 12 months to be classed as experienced. For a portfolio landlord, if you’ve bought four properties in quick succession, it takes a while to build up the equity to be able to buy more property.

The chances are if you’ve got four properties already, most lenders will already class you as an experienced landlord. The eligibility criteria about how long you’ve had properties for would not really come into play by that point.

How do lenders assess the affordability of a mortgage for a portfolio landlord?

Every lender is completely different. Unlike residential mortgages for a property to live in yourself, it’s less based on your personal income. Some lenders do have a minimum income criteria for a Buy to Let mortgage, which is usually in the region of £25,000 per year, but a lot of lenders don’t require any income at all.

Depending if you’re buying in your own personal name or under a limited company, lenders look for a certain percentage over the stress test amount. For example, if they’re stress testing their mortgage interest rate at 5.5%, some lenders want to see that the rental income is 125% more than the mortgage payment with that potential interest rate. That’s how they do it if you are an individual landlord.

If you were buying as a portfolio landlord, the same requirements come in place. The rental income needs to be a certain amount over that stress test, but they also do the same test across the entire portfolio. This makes sure that you’re not adding a sustainable property to an unsustainable portfolio, which could cause issues in the long run.

Does a portfolio mortgage have to be through one lender or can it be different lenders for individual properties?

A lot of people are under the impression that you have to have one mortgage for one property. But there are some specialist lenders out there that allow a ‘blanket’ mortgage, as such. As long as you’ve got enough equity in the properties and the rental income stacks up with stress testing, you could potentially get the one mortgage across multiple properties.

One benefit is that every lender has a product fee attached to a mortgage. If you have, for example, 10 to 15 properties and you’re having to remortgage them all at once, the product fees will be expensive. You’ve also got valuation fees on every single property.

But if you have one blanket mortgage across the whole portfolio, you could potentially save yourself money in fees.

If you’re getting to a point where you’ve got 15 mortgages, and you need to renew them every two or three years, you’re going to spend most of your life remortgaging. But if you could get the whole lot under the one mortgage, you’ve only got to worry about one remortgage – you could get on with more exciting things in life rather than paperwork.

Do you work with a lot of portfolio landlords on remortgages?

Yes, and we’ve got a customer at the moment going through this. He’s been constantly remortgaging his 12 properties and repeatedly having to get documentation together. He was frustrated and tired of it – and we’ve been able to roll all of those mortgages under one.

Because of that, rather than him having to get more documentation together every six months, he’s now only got to worry about that once every five years. As an older gentleman, he could get on and enjoy retirement and not spend his time doing all that paperwork.

What happens if a portfolio landlord’s existing properties do not meet lending criteria? Why would that be?

This could be down to the individual properties themselves. If the properties are non-standard construction or don’t meet a lender’s criteria, you could potentially take out an individual mortgage with a more suitable lender. So that won’t really cause too much of an issue.

Something that would prevent you from meeting portfolio criteria would be if the rental affordability of the properties didn’t stack up. If one property doesn’t match the stress test,
but another five or six do, that could work. Lenders look at it across the entire portfolio rather than each property on an individual basis.

But if your whole portfolio doesn’t stack up based on their tests, they will decline the application and we have to look at another lender for you.

What types of properties can be included in a landlord’s portfolio?

It depends on the lender. Ultimately, any property is subject to matching up with the lender’s criteria, so there is no real restriction unless the property is very weird and wonderful – such as a boat, or something you wouldn’t be able to get a traditional mortgage on.

As long as you could get a mortgage on the property, there should really be no reason why you wouldn’t be able to get a portfolio mortgage.

Are there any additional fees or charges associated with a portfolio landlord mortgage?

Because there’s so much more work involved for a mortgage broker, they will usually charge a bit more. But overall, it could actually save you money.

If you’re rolling all of the properties under the one mortgage, there are fees, but you’re not having to pay these on each individual property. It’s just one mortgage that covers the whole lot.

What are the potential benefits of a portfolio landlord mortgage?

There are a lot of benefits and a few negatives, as well. The main benefit is that the lenders are assessing your entire portfolio – and they are really stringent with their checks. It means that somebody from an external source is looking at your portfolio – you’re getting expert advice on whether or not the property could withstand interest rate increases.

It’s a way to see your portfolio from another set of eyes, so you could make changes and amendments to make it more sustainable.

Plus, with one mortgage covering all the properties, you’re potentially going to save money on valuation fees, product fees and – most importantly – you save time. You’re not having to remortgage your entire portfolio individually. You could do the whole lot at once.

On the negative side, you could see a property that’s an amazing deal but the rest of your portfolio just doesn’t stack up. You could run the risk of not being able to get this amazing property because your overall portfolio doesn’t meet the lender’s requirements.

Another potential downside is that if you do roll everything under one mortgage, it could potentially be a bit more rigid later on. If you wanted to potentially sell one or two properties off in future, there could be restrictions or early repayment charges to pay.

Are there any limitations on the locations of the properties that can be included in a landlord portfolio?

No, not at all. As long as they’re in the UK, it should be absolutely fine. If you could get a standard Buy to Let or residential mortgage on a property, there’ll be no different requirements when it comes down to a portfolio.

Approved by The Openwork Partnership on 18/09/2024.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.