Portfolio Mortgages
A portfolio mortgage could be worth considering if you own four or more investment properties.
By placing all of your properties under one mortgage facility you will streamline your finances and admin time. Read on to discover how portfolio mortgages work and how they can benefit landlords.
CONTACT A MORTGAGE BROKER
Are you managing four or more rental properties?
Feeling overwhelmed with the complexities of different mortgage accounts, varying interest rates, and a myriad of administrative tasks?
You’re not alone. Many landlords find themselves in a similar situation, but there’s a smart solution waiting for you.
Portfolio mortgages could be your key to unlocking a more streamlined, profitable approach to property investment. This guide is dedicated to helping you understand the ins and outs of portfolio mortgages, how they can transform your property finances, and why they might be a good strategic move for your growing portfolio.
What is a Portfolio Landlord?
You might have already heard the term “Portfolio Landlord.”
Simply put, this is someone who owns four or more properties with mortgages that they rent out.
Why does this matter?
Well, the rules for getting mortgages are a bit different for Portfolio Landlords.
A few years ago, the UK’s financial regulators decided that lenders need to take a closer look at these landlords before lending them money. They check things like how profitable the whole set of properties is, not just one.
They also look into how experienced the landlord is in managing rental properties, their overall financial situation, and their track record.
Being a Portfolio Landlord means you are likely to have different mortgage options than someone with fewer properties. The process to apply for these mortgages is also different, requiring you to share more information about your finances and how you manage your properties.
The idea behind these rules is to make sure landlords with several properties can handle the extra responsibility and financial commitment. It’s about keeping things safe and stable for both the landlord and the lender.
CALCULATING THE PORTFOLIO
There are rules governing the assessment of a ‘portfolio’.
Firstly, only mortgaged properties are included. So any unencumbered houses will not influence the definition of a Portfolio Landlord. They are simply left out of the equation.
If you own more than four rental properties, but less than four have mortgages, then you won’t be classed as a Portfolio Landlord.
These mortgaged properties will be included:
- Owned individually
- Owned jointly
- Owned through an SPV limited company
- Covered by a ‘consent to let’ agreement
- Jointly owned properties
Professional Landlords
You will be a professional landlord if your main source of income is rent from investment properties.
A professional landlord is generally someone who earns a significant part, or all of their income, from renting out properties. Unlike amateur or accidental landlords, who might rent out a property as a side venture or due to circumstances (like inheriting a property or moving for work), professional landlords treat property rental as a business.
Professional landlords are defined more by their approach and reliance on rental income as a primary source of earnings, rather than the number of properties they own.
They are knowledgeable about landlord-tenant laws, handle property maintenance efficiently, and manage tenant relations professionally. This can be true even if they own fewer than four properties.
Portfolio Mortgages
Portfolio mortgages are a specific type of lending product designed for experienced (portfolio) landlords who own multiple buy-to-let properties.
It is effectively one big mortgage arrangement, that finances lots of individual properties, all under one mortgage account.
A portfolio mortgage can help to streamline your admin where there are a great deal of properties to manage. There’s only one mortgage payment each month, and only one lender to deal with.
The portfolio can have a mixture of buy to let, holiday let, HMO and multi-unit freehold properties.
If you owned ten investment properties with separate mortgages then you have ten of everything to deal with:
- 10 monthly direct debit payments
- 10 annual mortgage statements
- 10 mortgage account numbers
- 10 interest rate deals to manage
A portfolio mortgage will have:
- 1 monthly direct debit payment
- 1 annual mortgage statement
- 1 mortgage account number
- 1 interest rate deal to manage
Do you have to use a portfolio mortgage?
No.
Whether or not you choose to use a portfolio mortgage is completely up to you. It’s your choice, regardless of how many properties you may own.
If you prefer to have one mortgage per property then it’s OK to continue with this.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
Why choose a portfolio mortgage?
The overwhelming advantage is the reduction in time spent on mortgage administration and mortgage refinancing.
A typical scenario would see all of the properties held within an SPV limited company.
This currently means that all of the mortgage interest can be offset against the rental income.
One lender will grant a single mortgage to the SPV, that covers all of these properties. The lender still needs a first charge against each property, but the mortgage administration involves just one account.
These types of mortgages can offer more flexibility in terms of borrowing amounts, terms, and conditions. They can be tailored to suit the specific needs of a landlord with multiple properties.
Portfolio mortgages sit between standard buy-to-let mortgages and commercial mortgages.
How many properties can you own?
There are no rules governing how many properties you can own, or any maximum number.
As a portfolio landlord, the number of properties you can include in your portfolio mortgage depends on several factors. Each lender has its own policies and limits on how many properties they’re willing to finance under a single mortgage.
There is no standard upper limit; it largely depends on the lender’s risk appetite and the strength of your portfolio.
Some lenders will have a cap on the number of properties held, others will have an overall loan limit.
How do these mortgages work?
Portfolio mortgages are similar to buy to let mortgages in that they are secured against individual residential investment properties and are usually interest-only.
Each property that you own will be taken as security via a first legal charge. You have just one lender that has security across all of the properties.
Portfolio loans can be used to finance:
- Buy-to-let properties
- Limited company buy-to-lets
- Student buy-to-lets
- Holiday lets
- Serviced accommodation
- Airbnb units
- Auction properties
- HMO (Houses in Multiple Occupation)
- Multi-Unit Freehold Blocks (MUFB)
Loan to value
Lenders will apply an overall loan to value percentage to the portfolio. In some cases this will influence the maximum lending.
So if you have a lower average LTV the lender will grant a higher loan maximum as their risk is reduced. Upper LTV’s tend to be around 80%.
Borrowing limit
Lenders will impose an overall limit on the total amount they will lend through the facility. For example, £4 million. Often this can be increased where a lower aggregate LTV can be proven.
Portfolio lenders will look at your overall portfolio when assessing the borrowing limit. This will include the rental income, loan commitments, styles of property and letting.
Applying for a portfolio mortgage
The information needed for a portfolio mortgage will vary between lenders.
They will all need to know about the individual properties:
- Property value
- Property type
- Number of bedrooms
- Mortgage lender
- Mortgage outstanding
- Monthly payment
- Gross rent
- Style of letting
They will require some confirmation of your personal earned income. So this could be from payslips, tax returns or the last 1-2 years of accounts.
In addition, they will want to see an assets and liabilities statement, and a business plan.
How a broker can help
Sourcing a property portfolio mortgage can be a bit of a minefield and very time consuming.
A mortgage broker can offer two key advantages:
Time saving
Your broker will be spending the time searching for the right lender and analysing your property data against each lender’s criteria.
Lender access
You can’t find a portfolio mortgage in your local high street. In fact many lenders don’t even advertise them to the general public. An experienced broker will give you access to those lenders who are actively seeking new portfolio landlords.
There’s quite a lot of background work for the broker to do and they can help you with creating a property schedule and a statement of assets and liabilities.
READY TO CHAT?
Give a call on 0330 030 5050 and we will put you in touch with an independent mortgage broker who specialises in portfolio mortgages.
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Mortgage Broker Guide
In this guide we’ll take a look at what mortgage brokers do, how they can help you, how they get paid plus tips on how to find a good one.
