As a landlord with four or more properties, a great way to simplify your finances is with a portfolio mortgage. This allows you to place all of your investment properties under just one mortgage with one lender. With various advantages, you also benefit from flexibility, increased borrowing power and growth potential.
What is a portfolio mortgage?
A portfolio mortgage allows you to have multiple investment properties under one mortgage loan. This means that you only need to deal with one lender, make one monthly mortgage payment and check one statement. This not only makes managing your finances much easier but saves you a lot of time.
How does a portfolio mortgage work?
You’re considered to be a portfolio landlord if you own four or more investment properties. Portfolio mortgages allow for a diverse portfolio of properties and you can apply as an individual landlord or a limited company. This type of mortgage offers you flexibility in that you can add or remove properties, opt for a short or long term and make overpayments, subject to the lender’s terms. The loan-to-value (LTV) ratio and interest rate can be calculated across your entire portfolio rather than being based on individual properties. Just like standard buy-to-let mortgages, you usually have a portfolio mortgage on an interest-only basis.
What properties can be placed under a portfolio mortgage?
Different types of investment properties can be covered under the same portfolio mortgage loan, making this an extremely flexible option. For example, you might own a buy-to-let property in Pimlico, an HMO in Welling and a multi-unit freehold in Bexleyheath. The following property types can be included under portfolio mortgages:
- Standard, student and limited company buy-to-let properties
- Auction properties
- Holiday lets
- Houses in multiple occupation (HMOs)
- Properties that have a consent to let
- Multiple flats within a single freehold title, called a multi-unit freehold block (MUFB)
What properties can’t be placed under a portfolio mortgage?
Standard properties are preferred by lenders for portfolio mortgages, such as residential houses and purpose-built flats with a traditional construction. You’ll find it harder to be approved for a portfolio mortgage on a studio flat, an ex-council property or a non-standard property. Examples of non-standard properties are those that have concrete constructions or timber frames.
The advantages of having a portfolio mortgage
There are numerous advantages with a portfolio mortgage:
- Simplify your finances. You can benefit from having multiple investment properties under one portfolio mortgage. This means that you only deal with one lender instead of several, make one mortgage payment each month and deal with one mortgage statement for multiple properties. This saves a lot of time and hassle.
- Have flexible options. You can include a diverse range of properties and benefit from the LTV and interest rate being calculated across the portfolio. You can add, remove or substitute properties in the future, subject to an assessment by the lender. Lenders also usually allow you to make overpayments without being penalised.
- Increase your borrowing power. The mortgage affordability calculations are based on your entire portfolio. This means that any properties performing well will compensate for those that aren’t. You might also be able to borrow a higher amount than would be possible with a standard mortgage.
- Enjoy growth potential. The equity that’s built up in your property portfolio can be used to increase its size. You can borrow against the equity and buy another investment property, allowing you to generate even more income.
- Have fewer limitations. Portfolio mortgage lenders don’t tend to restrict you when it comes to a property’s condition. This is in contrast to a standard mortgage where properties that are uninhabitable aren’t accepted. As such, you can buy a bargain property at an auction in London to renovate before renting it out, for example.
- Be more tax-efficient. You may already have fallen under a higher tax bracket as a landlord due to changes in tax legislation. To be more tax-efficient, set up a limited company rather than buying investment properties as an individual landlord. Transfer your portfolio of properties to a single portfolio mortgage to benefit even more.
Are there any disadvantages to portfolio mortgages?
As with any financial product, there are disadvantages to consider too before making a decision.
- A higher interest rate. The interest rate you’ll pay for a portfolio mortgage will be higher than for a buy-to-let mortgage. This is because there’s more risk involved for a lender with a portfolio mortgage.
- Early repayment charges. Before making an overpayment on your mortgage, check your lender’s terms. This is because some lenders apply early repayment charges.
- Less financial flexibility. As all of your properties are under one portfolio mortgage and you only make one monthly mortgage payment, there’s no leeway on your mortgage payments should an unexpected expense occur. For example, you may have to carry out repairs at different properties at the same time, which will be costly. However, you won’t be able to ask your lender to defer your mortgage payments to temporarily ease the financial strain.
- Decreasing prices. The property market is continually changing and, as such, you need to allow for price decreases as these will affect your entire portfolio. If rental prices start to decrease, you’ll have less income. If property values begin to decrease, so will the equity in your portfolio. These decreases will affect any future property purchases you wish to make using a portfolio mortgage.
Simplify your finances and save time with a portfolio mortgage
Whether you’re looking to expand your property portfolio or remortgage your existing investment properties, a portfolio mortgage is a flexible option. Give our mortgage brokers a call on 01322 907 000 to discuss your situation and discover the portfolio mortgage deals available. As a landlord, you’ll be able to maximise your finances while minimising the time and effort you usually spend dealing with mortgages.