If you’re a landlord with an eye on expanding your property portfolio, it’s essential to understand what it means to be a ‘portfolio landlord’ and how this status can impact your ability to secure buy-to-let mortgages.
Portfolio landlords fall into a special category that lenders view differently from other borrowers.
This guide is designed to walk you through the complexities of being a portfolio landlord, including what additional requirements and challenges you may face.
Defining a portfolio landlord
As a property investor it’s important to understand whether you fall under the category of a ‘portfolio landlord‘, or when this might apply in the future.
The Prudential Regulation Authority (PRA) has a clear definition:
you are a portfolio landlord if you own four or more mortgaged buy-to-let properties. This count includes properties across all lenders and can encompass a variety of property types.
Counting the properties
Any buy-to-let properties you have with a mortgage count towards this total. It includes properties you own individually, jointly, or through a limited company.
Property types
Your portfolio may consist of diverse property types. This includes traditional residential rentals, holiday lets, and even ‘consent to let’ properties. Each contributes to your overall property count.
Application level
The assessment is at the application level, not just the individual applicant. This means if you’re applying jointly with another landlord, the total combined number of mortgaged properties you both own is considered.
SPV owned
Properties owned through an SPV limited company that you, or another borrower, control are included in your portfolio count.
Non-mortgaged properties
Properties that you own outright, without a mortgage, do not count towards the portfolio landlord classification.
Classification
You don’t choose whether to be a portfolio landlord, or not. If you, or a joint borrower, collectively own four or more mortgaged investment properties you automatically become a portfolio landlord.
The Prudential Regulation Authority (PRA) is a regulatory body in the United Kingdom, part of the Bank of England. Its primary role is to oversee the financial health and stability of banks, building societies, credit unions, insurers, and major investment firms.
Here are the key functions of the PRA:
Ensuring Safety and Soundness: The PRA ensures that the financial institutions it regulates are run safely and soundly. This means making sure these institutions have enough financial reserves and are managed in a way that minimizes the risk of failure.
Setting Standards: The PRA sets standards and regulations that these financial institutions must follow. These standards are designed to make sure that the firms are financially strong and operate responsibly.
Supervision: The PRA actively supervises the firms under its jurisdiction. This involves assessing their financial condition, the risks they are taking, and their compliance with regulations.
Consumer Protection: Although its primary focus is the stability of the financial system, the PRA’s activities also contribute to the protection of consumers. By ensuring the firms are stable and well-run, it helps safeguard people’s savings, insurance policies, and other financial products.
Policy Making: The PRA is involved in making policies related to the financial industry. It works to identify risks and develop strategies to address them, helping to maintain the overall health of the UK’s financial system.
Learn more: www.bankofengland.co.uk/prudential-regulation
Mortgage implications
As a portfolio landlord, the process of securing a buy-to-let mortgage is more nuanced compared to standard applications, and a bit more involved.
Lenders perceive your situation as more complex due to the number of properties and mortgages.
Enhanced Affordability Assessments
Lenders will conduct thorough affordability checks on your entire portfolio. This includes assessing the rental income and expenses of each property to ensure you can comfortably cover all mortgage payments, even in fluctuating market conditions.
Property-by-Property Stress Testing
Each property in your portfolio must pass individual ‘stress tests’. Lenders evaluate if the rental income from each property can sustainably cover mortgage repayments, particularly under hypothetical scenarios like interest rate rises.
Overall Portfolio Evaluation
Beyond individual properties, lenders assess the health of your entire portfolio. They consider factors like geographic diversity, property types, tenant profiles, letting styles and your track record in managing multiple properties.
Additional documentation
Property Portfolio Overview
You’ll need to provide a detailed spreadsheet of your entire property portfolio. This should include information on each property’s value, rental income, mortgage details, and any other relevant financial data.
Income and Expenditure Statements
Be prepared to show comprehensive income and expenditure statements for your portfolio, demonstrating your financial acumen and property management skills.
Assets and Liabilities
Beyond the property information, lenders will want to see a personal assets and liabilities statement. This would include details beyond property ownership.
Business Plan and Cash Flow Projections
Some lenders may request a business plan and cash flow forecasts. These documents should outline your strategy for property management and future investments, showcasing your long-term financial planning.
Tax Documents and Bank Statements
Expect to submit recent tax returns, SA302 forms, and bank statements. These documents help lenders assess your overall financial health and reliability as a borrower.
Impact on mortgage availability
Portfolio landlords will have a reduced number of lenders available to them.
The more conservative high street lenders tend not to lend beyond a handful of investment properties.
Fortunately there are a good number of lenders who are active in this market, and are willing to support landlords who own multiple properties.
While the actual mortgages are the same as any other buy to let, it’s the mortgage assessment that is more challenging and time consuming.
Lending criteria
As with all mortgages, each lender has their own particular criteria for a mortgage application.
Here’s some of the more common criteria used for portfolio investors:
Age
Borrowers need to be between 18 and 75 for most lenders. The mortgage term should end before age 85.
Loan to value
Expect some lenders to impose LTV restriction both on the specific property being mortgaged, and the overall portfolio. This generally is around 75%.
Maximum limits
It’s common for lenders to have maximum limits on the number of properties per portfolio. Typically this could be 5-10, with a few lenders happy with higher figures.
Stress tests
Interest cover ratio (ICR) stress tests will be applied to the entire portfolio. This is usually set at 145% of the mortgage payments.
Property types
All lenders will have types of properties that they prefer, and some that they don’t want.
Affordability
Personal affordability is very important. Lenders will want to see details of your personal income and expenditure, plus a full credit score, affordability assessment and a review of current credit commitments.
what is a Portfolio Mortgage?
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.
SPV owned properties
All properties that a borrower owns via a limited company SPV will be included in the assessment of whether they are a portfolio landlord.
So if you own two mortgaged buy to lets in your personal name and two in a limited company, you are a portfolio landlord.
Joint mortgage applications
Joint mortgages are available for portfolio landlords.
For joint applications the assessment is at the application level, not just the individual applicant. This means that properties owned by both borrowers will be included in the assessment.
So if you own two mortgaged buy to lets and the other borrowers owns one or more, you will both be assessed as a portfolio landlord.
Portfolio Landlord Spreadsheet
As a landlord with four or more mortgaged properties, you need to be prepared when applying for a buy-to-let mortgage or remortgage.
Use our portfolio spreadsheet to capture the information that lenders (and brokers) will need from you.
Microsoft Excel .xlsx 123kb
YOUR QUESTIONS ANSWERED
What does it mean to be classed as a portfolio landlord?
It means that whenever you apply for a new investment property mortgage, extra assessments will be applied.
Do portfolio landlords pay more?
The mortgage rates are comparable to a standard buy to let. In fact, some lenders offer the same rates.
Is it harder to get a buy-to-let mortgage?
It is harder, as there are less lenders to choose from and the application process is more involved.
Is there a maximum portfolio size?
There are no rules restricting the size of a person’s property portfolio. Each lender will have their own internal limits, which is often 5-10 properties.
Are SPV mortgages available?
Yes, SPV mortgages are available to portfolio landlords.
I already have three properties and plan on buying another one.
Presuming all have mortgages, you will be classed as a portfolio landlord for the purpose of the new mortgage application.
What about unencumbered properties?
For the purposes of defining a ‘portfolio landlord’, only mortgaged properties are included.
Will I need a bigger deposit?
This could be required, it totally depends on your portfolio assessment.
Does an SPV get around these rules?
No. Properties owned jointly or via a limited company still count.
What happens if you buy with someone else?
Joint mortgages are available for portfolio landlords. All of your properties will be used for the ‘portfolio landlord’ definition.
How a broker can help
Every portfolio landlord’s situation is unique, and a mortgage broker excels in providing personalised service. They take the time to understand your specific needs, investment goals, and financial circumstances.
Only an independent mortgage broker can provide access to the specialist lenders operating in the portfolio landlord marketplace.
The mortgage application process for portfolio landlords is very involved, given the extensive documentation and strict lender criteria involved. A mortgage broker simplifies this process by helping you prepare and organise the necessary paperwork. They manage the application from start to finish, liaising with lenders and addressing any challenges that arise.
The support from a mortgage broker doesn’t end with the successful securing of a mortgage. They provide ongoing assistance, helping you review and adjust your portfolio strategy as market conditions evolve. This includes long-term planning, whether it involves expanding your portfolio, diversifying your investments, or preparing for retirement.
Please call us on 0330 030 5050 so we can put you in touch with a buy to let specialist broker.
Ready to explore your buy to let options?
Let our buy to let experts lead the way.
Fill out our quick form and gain access to tailored mortgage advice and exclusive rates.
An independent mortgage broker can access over 100 lenders on your behalf. They will make the process smoother and more profitable than going it alone.
You know it makes sense.
