Portfolio Landlord Mortgage
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Portfolio Landlord Mortgage
Kelly Nicholson answers some frequently asked questions on mortgages for portfolio landlords.
How does a portfolio landlord mortgage differ from a regular Buy to Let mortgage?
A portfolio landlord is classed as any person owning four or more mortgaged Buy to Let properties. As a portfolio landlord things differ slightly in how the lenders assess affordability and criteria.
A regular Buy to Let mortgage is for anybody who owns up to three mortgaged Buy to Let properties. Not all lenders are in the portfolio landlord market so you often see more options on a standard buy to let mortgage.
What are the eligibility requirements for a portfolio landlord mortgage?
As long as you have the four or mortgaged Buy to Let properties, you’re automatically classed as a portfolio landlord. Assessing eligibility can vary depending on the lender and what you’re planning to do.
With any buy to let mortgage, the lender will assess affordability based on the property’s expected rental income. With a portfolio mortgage, they don’t just look at the individual Buy to Let property you’re looking to mortgage but also at your portfolio as a whole. It’s a commercial transaction, so they want to look at the business as a whole and your plans moving forward, as well as each individual property.
What documentation is typically required to apply for a portfolio landlord mortgage?
The normal Buy to Let documentation will include bank statements, proof of your personal income, ID documents and proof of address.
For a portfolio landlord, lenders treat you as a business and want to see your plans. More often than not, they will ask for things like cash flow documentation and business plans. It’s just to check the sustainability of your portfolio and your future projections.
What is the maximum number of properties that can be included in a portfolio landlord mortgage?
This varies from lender to lender. Some may have a limit of up to ten properties. Other lenders don’t have a limit by number of properties, but might set a financial limit of £1 million in borrowing.
Each lender is different and your plans will affect their position, so there’s no specific maximum.
What criteria do lenders consider when evaluating a portfolio landlord’s experience and track record?
They want to understand how long you have owned properties, how long you have rented properties to tenants, whether you manage them yourselves or instruct an agency to manage them for you.
They will want to know your plans are moving forward – are you somebody who’s planning on buying a huge amount of properties within a short space of time? If so, they want to see the details of your plans, to make sure it’s not a high risk strategy.
If you’re planning on selling some of your properties in the near future, again, they just want to make sure that your expected change in rental income won’t affect their affordability and stress testing criteria.
To do that, they will want to see business plans and cash flow statements to assess both affordability and sustainability.
What happens if a portfolio landlord’s existing properties do not meet lending criteria?
It completely depends on what we’re looking to do. Let’s say, for example, your fixed rate mortgage is expiring soon and you’re looking for a new deal. If for any reason your existing portfolio doesn’t fit lenders’ affordability and stress tests, your existing lender should be able to offer a product transfer. You can always get a new rate with your existing lender – they don’t necessarily worry too much about your background portfolio.
Other lenders may use your own personal income towards affordability. So, if the whole portfolio doesn’t meet the stress test for whatever reason, but you have your own employed or self-employed income, sometimes we can use that. This is called top slicing – to top up your earned income and make the calculations work. So there are a number of options.
How do lenders assess the affordability of a portfolio landlord mortgage?
On both a normal Buy to Let mortgage, each individual property will be assessed at a certain stress test. There are different scenarios and lenders each have their own tests – so I can’t give any specific numbers.
With a portfolio, lenders assess all your background properties. That will include any other properties you own, whether they are in personal names or limited company names. So it’s really important that we get up to date rental figures and mortgage balances across your whole portfolio. Then we can make sure that the portfolio as a whole does work.
What types of properties can be included in a portfolio?
Any, really. The most common type is your standard Buy to Let with an assured shorthold tenancy agreement. You can also have HMO (House in Multiple Occupation) properties – a property where you are renting rooms to different people.
You can also have holiday lets, any properties that you own within a limited company, or any property you have a mortgage on can be included. Not all lenders do all those different types of mortgages, but as long as your portfolio meets their criteria then it’s the new, subject property that’s important to each individual lender.
Are there any additional fees or charges associated with a portfolio landlord mortgage?
With any additional property purchase you’re always going to pay the highest rate of stamp duty for any additional purchases.
With portfolio products we sometimes see that arrangement fees or interest rates are slightly higher, but it isn’t always the case. We will assess the market and make sure you are getting the best deal. So there are no additional fees really, it all comes down to preference and the product you choose.
What are the potential benefits of a portfolio landlord mortgage?
There can be benefits of lenders assessing your whole portfolio. If, for example, a property you’re looking to buy is slightly lower in rental income, but another property you own is quite high, they balance each other out. That can make affordability and stress tests work more effectively than just focusing on one individual property.
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Are there any limitations on the locations of the properties that can be included in a portfolio landlord mortgage?
Sometimes, yes. Some lenders have their own limitations on, for example, a number of properties in the same postcode area or the same street but this does vary from lender to lender.
The idea is that if you owned 10 properties in one street and for any reason they had to come and repossess these, they could be overexposed and unable to sell the properties. But not all lenders do that.
If you’re buying a property that’s not local to where you live, they will sometimes ask how you’re going to manage those properties – but usually in that scenario there’s a property management company or an estate agent that will do that for you and lenders are happy with that.
As long as you can explain what you’re looking to do, there aren’t too many limitations.
Are there any restrictions on the types of tenancies that can be considered for a portfolio landlord mortgage?
The standard tenancy agreement is where you’re letting to a single person or a single family.
But lenders also allow tenancies to students or in HMOs, where you’re renting out each individual room in a property.
They may also allow tenants who are using housing benefits to pay for the rent. Some lenders have their own individual restrictions, but as long as we can see the rental income and it meets stress tests against your mortgage borrowing, we can get you a portfolio mortgage.
Can a portfolio landlord mortgage be used for both residential and commercial properties?
Yes, absolutely. Essentially you’re classed as a portfolio landlord if you have four or more mortgaged Buy to Let properties. Those mortgages can be owned through a limited company or in your personal name. They could be joint with somebody else or on a commercial property or piece of land.
Essentially, if you have a mortgage on it in your name or your company’s name, that property can be included.
Are there any specific tax implications or considerations for portfolio landlords?
We can’t advise on tax, but with any income you’re receiving, of course that tax has to be declared. The more properties you own, the higher your income – so it’s always worth speaking to an accountant.
We always recommend that to anybody who’s buying to let, not just portfolio landlords. Speak to your accountant to make sure that the way that you’re buying or holding those properties is the best for you taxwise and for your personal circumstances.
How can a portfolio landlord mortgage assist in growing a property portfolio?
If you have a number of properties already, we can help you prove to a lender that you are an experienced landlord and can demonstrate that you’ve owned the properties for a number of years, they’ve all been rented, and you’ve achieved a certain income over the years.
When you’re in a position where you have experience, relevant bank statements and tax returns that prove everything that needs to be proved, it just puts you in a better position. It shows you’re credible for your next potential property purchase, to increase that portfolio.
Is it possible to switch lenders or remortgage a portfolio landlord mortgage?
A remortgage can be processed as usual, as long as you fit the lender’s criteria for the portfolio. It does vary from lender to lender as to how many properties they allow and what your personal circumstances are, but more and more lenders are coming into the portfolio landlord market, which just opens up the number of options.
What role does rental income play in obtaining a mortgage if you are a portfolio landlord?
It’s one of the main factors. It’s not just that particular property that lenders look at, rental income-wise. It’s the rental income across the portfolio that the lenders are interested in.
They want to make sure that you’re not borrowing too much and that the rental income you receive is sufficient. They want to ensure that if you don’t have a tenant for a month or two, you can still afford to keep on top of all the mortgages.
It’s all about making sure you’re not overexposed in terms of borrowing. The rental income is one of the main things they will look at.
How do the interest rates on a portfolio landlord mortgage compare to other types of mortgage?
The main difference is that, because not all Buy to Let lenders offer mortgages to portfolio landlords, you don’t have access to every single interest rate. There just aren’t as many lenders in this area of the market.
But the interest rates for these lenders don’t differ too much at all. They don’t penalise a portfolio landlord for setting up a business and growing it over time.
Can a portfolio landlord mortgage be obtained for properties owned jointly with others?
Yes, absolutely. The way that the lenders assess a joint application is to look at the number of properties you own jointly. For example, a joint mortgage application in which one person owns two properties and the other owns three properties they will be classed as portfolio landlords on a joint application as collectively own more than 4 mortgaged buy to lets. If they were applying for a mortgage individually they wouldn’t be classed as portfolio landlords because they own less than four properties each.
So with property in single names, joint names or limited companies you can apply that way.
Is it possible to obtain a portfolio landlord mortgage if you have a bad credit history?
Potentially, yes. With bad credit, different lenders accept different things. Your specific credit history and how recent any issues were will impact which lenders will accept you. Getting a mortgage is still possible if you have credit blips. It just means that we’re more limited in lenders, as we would be with any other kind of mortgage.
How long does the application process for a portfolio landlord mortgage usually take?
It doesn’t take too much longer than a normal Buy to Let mortgage. The only difference really is the additional documentation needed – business plans, cash flow documents and bank statements to prove the rental income on every single property.
The lengthiest part of the process is getting those documents together and making sure we have everything that the underwriters need. But the usual mortgage processing times apply.
If you have dozens of properties, getting those bank statements together to prove the rental income can take a little bit of time.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.