Portfolio Mortgages

You’re considered to be a professional landlord if your main income source is from your rental properties. If you wish to mortgage up to three properties, you can arrange buy-to-let mortgages. If you have four or more properties, you can arrange a portfolio mortgage if you prefer. This isn’t a requirement but a portfolio mortgage can provide you with a lot of advantages as a landlord. The main advantage is that you can have multiple properties secured under one loan, saving you time and money compared with arranging individual loans per property.

There are key differences to consider between the two types of mortgages. Buy-to-let mortgages are widely offered by lenders, whereas portfolio mortgages are a niche product and, therefore, not as commonly available. Comprehensive stress tests are applied across the portfolio for the latter type, with the portfolio’s performance as a whole being examined by the lender. More extensive documentation is required than for an individual buy-to-let property. Portfolio mortgages generally come with higher interest rates as they pose more of a risk to lenders but they can offer flexibility to a landlord that cannot be found in a buy-to-let arrangement.

Whilst there’s nothing to stop you from having as many landlord mortgages as you want in theory, lenders have their own criteria. Some limit the number of mortgages you can have with them to help manage their risk. Others take into account how many mortgaged properties you have with other lenders. Specialist lenders can support large portfolios and a portfolio mortgage can be very advantageous compared with managing several individual loans.

Although there’s no legal limit to the number of landlord (buy-to-let) mortgages you can hold, you’ll also be restricted by the amount you can afford to borrow. This will be determined by the anticipated rental income, your personal income where lenders allow top slicing and any equity you have in properties.

Whilst you can arrange a portfolio mortgage when you have bad credit, not all lenders agree to this. This reduces the options that are available to you and you generally need to use a specialist lender. Just be aware that you may have to pay a higher deposit and fees and be charged a higher interest rate. This is to help mitigate the lender’s risk.

When you have a bad credit history, the lender will want to know the reason for this, how long ago the issue occurred and how your credit history has improved since then. Specialist lenders offer more flexibility than mainstream lenders, using a manual underwriting process. As such, they will look at the performance of your portfolio and rental income, rather than just focusing on your credit score.

Our mortgage brokers know which lenders consider bad credit portfolio mortgages and will approach the right one accordingly on your behalf.

No, you don’t need to remortgage your existing buy-to-let mortgages to a portfolio mortgage just because you have multiple properties. If you wish to do so, however, there are benefits to doing this. One of these is that it simplifies the management of your mortgaged properties. With a portfolio mortgage, multiple properties are secured under one loan. As such, you only have to deal with one lender and make one monthly mortgage payment instead of several. It also allows for greater borrowing potential, enabling you to use the combined equity in the portfolio.

If the introductory rate is due to end for an existing buy-to-let mortgage, it’s a good idea to remortgage, either to a new buy-to-let deal or to a portfolio product. If you don’t, the introductory rate will automatically switch to the lender’s standard variable rate (SVR). SVRs can be higher than other interest rates, costing you significantly more in the long run.

Before remortgaging, check the costs involved. If you change to a new deal before your introductory period has ended, you may be liable for an early repayment charge with your current lender. This can be very expensive and the cost may negate any savings you stand to make by remortgaging. Other costs can include a valuation fee, the new lender’s arrangement fee and legal costs.

Our mortgage brokers can compare your current buy-to-let deals with the alternatives available to help you make the right decision.

Yes, a low valuation on a single property can affect the whole portfolio mortgage. This is because it affects the overall loan-to-value (LTV) ratio and level of risk for the lender. Lenders typically offer a maximum LTV of 75% for an entire portfolio. If one property has a lower valuation, however, it decreases the value of your portfolio. As a result, the lender may reduce the amount that they’re willing to lend you, lowering the LTV. You will then need to find the funds to cover the shortfall.

If the change in LTV causes the lender to reassess the risk, they may increase the interest rate across your portfolio. This will make your loan significantly more expensive overall. A lower valuation can also affect the interest coverage ratio (ICR) when you’re looking to refinance your portfolio. This is because the rental income required for the loan amount may not be adequate enough.

To help overcome these issues, there are a few things you can do. If you’re buying the property as part of your portfolio, try to negotiate on the price with the seller. If you can find evidence of higher comparable sales, challenge the valuation that has been given. Alternatively, consider using a different lender who offers more flexible criteria.

Being a portfolio landlord means that you have at least four rental properties so you usually already have experience as a landlord. However, there are occasions when you may obtain multiple rental properties despite never having been a landlord before. For example, you may inherit a portfolio of investment properties that already have buy-to-let mortgages. Or you may purchase a multi-unit freehold block (MUFB), such as a small block of flats or a large house that has been converted into four flats.

In this case, as a first-time landlord, you can get a portfolio mortgage. This option isn’t offered by all lenders as some set minimum requirements, such as having 2 years’ experience as a landlord. Therefore, your choice of mortgage deals will be limited. Our mortgage brokers know which lenders are willing to accept first-time landlords for portfolio mortgages. Get in touch with us on 01322 907 000 and we’ll negotiate the best terms and rates for you.

Whilst having insurance isn’t a legal requirement, it’s certainly recommended to protect your properties against any unexpected issues that may occur. As well as standard buildings and contents insurance, there are many other issues for rental properties that are covered by landlord insurance. For example, rent income protection, loss of rent insurance, property owners’ liability cover, replacement locks and keys, and more.

Just as a portfolio mortgage makes managing the mortgage aspect of your properties easier, portfolio insurance simplifies the management of your properties’ insurance cover. It saves you time, money and stress as one policy covers multiple properties and is more cost-effective than having separate policies. You don’t need to worry about getting individual quotes, keeping track of different policies for various properties or making multiple payments throughout the year. Instead, you deal with one provider and cover multiple properties under a single insurance policy.

Portfolio insurance is incredibly flexible in that you can arrange comprehensive cover for a mix of property and tenant types under one policy. As well as that, you can add and remove properties when you need to throughout the term of the policy. Your policy will be specifically tailored to your unique needs as a landlord of multiple investment properties, giving you peace of mind that you’re financially protected should the unexpected happen.

The maximum loan amount you can be offered for a portfolio mortgage depends on the lender as each one sets its own limits. Some, for example, may cap loan amounts at £1 million across all properties, while others may offer higher limits, such as £5 million or £10 million. While allowing an overall combined loan amount, such as £5 million, some lenders may stipulate a borrowing limit per property, such as £1 million.

Specialist lenders and private banks may not have a maximum borrowing limit, preferring to base the loan amount on your income, the loan-to-value (LTV) ratio and your risk profile.

Using the services of a mortgage broker can be invaluable when applying for a portfolio mortgage, whether as an individual or a limited company. As a niche type of loan, not all lenders offer this product and those who do vary considerably in their criteria and terms. A broker knows which lenders offer portfolio mortgages and what their different requirements are, allowing them to quickly identify the most suitable ones for your financial situation and needs. This saves you a considerable amount of time compared with trying to find the right lender yourself.

Portfolio mortgages are also complex and a mortgage broker can use their skills to help navigate the process with ease. This includes understanding a lender’s specific criteria, such as any property limits, minimum income requirements and the stress tests it applies when assessing the affordability. Every landlord’s portfolio varies greatly, including the number of properties within it, the types of properties, the property values, anticipated rental incomes and the amount of equity within the portfolio. As such, a mortgage broker can tailor your application to ensure the highest chance of success when presented to the right lender.

Exclusive deals and a tailored approached

Our mortgage brokers work with a wide range of lenders, including mainstream and specialist lenders as well as private banks, and they have exclusive access to deals that lenders don’t offer publicly. This enables them to identify the lenders most suited to handling your portfolio structure, which avoids the risk of having a rejected application. Our brokers can then compare the deals and, having checked the costs and repayment options, negotiate for the best rates and terms on your behalf. Securing a competitive rate across your portfolio has the potential to save you a significant amount of money.

From the point your application is submitted, your broker will oversee the process from start to finish, liaising between you and the lender. That way, any queries can be dealt with quickly and your broker will be your single point of contact to make things easier for you.

Generally, having two or more investment properties constitutes a portfolio. However, lenders require that you have four or more rental properties to qualify for a portfolio mortgage. This can be a mix of property types, such as residential, commercial and mixed-use properties in one portfolio.

The amount of money needed to start a property portfolio varies depending on the property type and location as well as your investment strategy. Generally, you need to budget for:

• A deposit, which is usually 25%
• Standard costs, such as valuation and survey fees, legal costs and the lender’s arrangement fee
• Stamp duty, which applies as a 5% surcharge on additional residential properties
• Additional costs, such as insurance cover, the cost of required certificates/licences and any repairs that need carrying out.

If you’re not going to handle the property management yourself, you need to allow for a managing agent’s costs. It’s also recommended to set extra funds aside as a buffer in case of unexpected costs.

When assessing your portfolio mortgage application, one factor that a lender will consider is your experience as a landlord. This is because having a proven track record helps mitigate their risk when offering you a loan.

There are some lenders who don’t require you to have any previous experience but, on the whole, some experience with letting properties is required. Some lenders may set a minimum requirement, such as 2 years of experience. This is especially the case for complex properties, such as HMOs. Other lenders may go further by requiring that you have had experience specifically as a landlord of a portfolio of properties, rather than just one or two.

If you don’t have much experience as a landlord, if any, you will have a better chance of being accepted for a mortgage if you have high-performing properties in your portfolio, significant assets and a strong financial profile. If you make a joint mortgage application, at least one applicant will need to meet the lender’s criteria for experience.

Yes, there are certain risks to consider before taking out a portfolio mortgage. Risks apply to any mortgage product but having multiple properties increases the risk involved. Examples include:

• If a property is undervalued, it can affect your whole portfolio as it will decrease the overall portfolio value. This reduces the amount of equity in your portfolio and lenders will more than likely offer a lower loan amount. As a result, you’ll have to find adequate funds to cover the shortfall and may have to pay a higher interest rate.
• Cross-collateralisation. As multiple properties are linked under one mortgage, the underperformance of one property can affect the entire portfolio. For example, there may be a significant void between tenancies in one property or a lower rent has to be collected than had originally been anticipated.
• If you default, the lender is within its rights to seize multiple properties to recover any losses.
• Higher costs. As this type of mortgage is complex and poses more of a risk to the lender, it usually comes with a higher interest rate. Higher fees are also usually charged, such as the lender’s arrangement fee, valuation fees and legal costs.

Our specialist mortgage brokers can help you understand the risks and review your portfolio structure to ensure the best financial solution.

Generally, portfolio mortgage lenders require a deposit of 25% as they offer a maximum loan-to-value (LTV) ratio of 75%. This isn’t always the case as each lender varies in their criteria. For example, a lender may be willing to accept a lower deposit of 20%, although you’ll likely pay a higher interest rate as a result. Some lenders, on the other hand, require much higher deposits, such as 40%. This is often the case with specialised properties, such as HMOs.

The more deposit you can pay, the better the interest rate you’re likely to be offered. This is because a higher deposit helps to mitigate a lender’s risk. A lower interest rate can significantly reduce the overall cost of your loan so it’s worth putting down as much deposit as you can.

If you don’t have adequate savings to cover a deposit, some lenders are willing to accept gifted deposits. Another option is to release equity from one of the existing properties in your portfolio, enabling you to invest in a new one with little or no deposit.

Having four or more rental properties doesn’t mean that you have to have a portfolio mortgage; however, there are various advantages to consider for doing so. These include:

Streamlined financial management

Having all of your properties under a single loan rather than individual mortgages simplifies the management process. You only need to deal with one lender, pay one monthly payment, deal with one policy and remember one renewal each year. This saves a considerable amount of time and effort as well as money.

Increased profit margins

By having one loan instead of several, you stand to gain on overall costs, such as interest rates and arrangement fees. This allows your rental income to stretch further, giving you additional funds that you can invest back into your portfolio.

The ability to include a diverse range of properties

Lenders are flexible with the types of properties that can be included in a portfolio as well as the conditions that those properties are in. You also have the ability to add, remove or substitute properties, subject to further assessment by the lender.

Flexible underwriting

The overall performance and strength of your portfolio is assessed instead of the individual properties within it. This offers flexibility when you have a diverse range of properties in the portfolio and there are varying property conditions. If some properties are underperforming, the strong-performing properties compensate for this, which would not be the case when applying for an individual buy-to-let mortgage.

A higher borrowing capacity

The rental income across your entire portfolio is taken into account by the lender when assessing your affordability. As all of your properties are under one loan, high-performing properties compensate for those that are underperforming. Therefore, instead of an underperforming property being a cause for concern, this arrangement may enable you to borrow a higher amount.

Easier portfolio growth

As your properties are consolidated under a single mortgage, you can unlock the overall equity in your portfolio. This makes it much easier to raise funds to carry out property improvements or purchase additional properties for your portfolio.

Tax efficiency

If you structure your investments through a limited company rather than investing as an individual landlord, you can be more tax efficient with a portfolio mortgage. Any funds withdrawn are taxed as a whole instead of being taxed on the net income. Therefore, if you retain funds in the portfolio and use them to buy additional properties or to pay for renovations, you’ll pay a lower rate of corporation tax as these will be considered to be expenses.

Absolutely, and remortgaging part of a portfolio is a common strategy used by landlords for various reasons. These include being able to:

• Secure a better interest rate. You may be able to find a more competitive rate with another lender, helping to lower your borrowing costs.
• Finance renovations of another property in the portfolio. You can raise the capital needed to fund the renovation of a property in your portfolio by remortgaging another one that is high in equity.
• Benefit from the increased value of a property. When a property’s value increases, you can take advantage of it to build your portfolio by releasing the equity and using it as a deposit for a new property.
• Consolidate your debts. You can partially remortgage your portfolio to consolidate outstanding debts you have.

Remortgaging part of your portfolio rather than every property gives you more flexibility. Bear in mind the costs involved with remortgaging, such as a potential early repayment charge with your current lender and the new lender’s fees. Our mortgage brokers can compare the costs of remortgage deals for you to help manage the risk and overall profitability of your portfolio.

You can apply for a portfolio mortgage when you have four or more mortgage rental properties. This can be done as an individual or a limited company. Lenders’ criteria vary but they generally expect you to have a good credit history, a good financial standing and experience as a landlord, with a solid track record. Your portfolio performance will be assessed based on the overall income and rental yields, needing to meet the lender’s required rental coverage ratio. The maximum loan-to-value (LTV) ratio offered is usually 75%, meaning you need to have a deposit of 25%.

You’ll usually be asked to provide a business plan, an asset and liability statement and a property schedule. The latter will need to include the full details of your portfolio, such as the property values, LTVs, outstanding mortgage balances, monthly mortgage payments, monthly rental incomes, lenders’ details, whether the properties are tenanted and how long you’ve owned each property.

Depending on your circumstances, you may be asked to provide a personal guarantee. For example, you may have a start-up company and are applying for a portfolio mortgage via a special purpose vehicle (SPV) limited company. With a lack of trading history, the lender may stipulate that you need to pay a higher deposit, provide evidence of strong future income, prove your experience as a landlord and give a personal guarantee.

Our mortgage brokers can help you navigate the complexities of portfolio mortgages, whether you’re applying as an individual or a limited company. They know different lenders’ criteria, ranging from those willing to lend to new companies and those offering more flexibility for large-scale investors. Offering tailored advice and with access to a wide range of deals, they can find the right portfolio mortgage deal for your needs.

Whilst having a portfolio mortgage makes it easier to manage your finances, there are various drawbacks to consider before taking one out. These include:

Limited choice

As a complex product, not all mainstream lenders offer portfolio mortgages, restricting your options compared with buy-to-let mortgages. Those who do may have limits for portfolio sizes and have stringent criteria. Specialist and commercial lenders, however, offer much more flexibility, providing bespoke financing solutions.

Higher costs

Portfolio mortgages pose more of a risk to lenders so their increased charges help to mitigate this. Expect to pay a higher interest rate than you would for a buy-to-let mortgage as well as a significant arrangement fee and a higher early repayment charge. The valuation fees and legal costs will also be higher to account for the complexity of dealing with multiple properties.

More stringent criteria

As you’re borrowing against multiple properties, you need to fulfil stricter requirements than you would for a buy-to-let mortgage. These include providing extensive documentation, having a good credit rating, paying a higher deposit and needing to meet a high rental income yield.

Cross-collateralisation risks

If something happens to one property, it can affect the rest of the portfolio. For example, if it drops in value, a lower-than-anticipated rent is achieved or there’s an unexpected void period. With a loan that’s secured against all of the properties in the portfolio, this places the other properties at risk if the lender has to take action to recoup any losses.

Financial impact when selling a property

Selling a property that’s under one portfolio loan can result in your lender requiring the loan to be restructured or partially repaid. The loan-to-value (LTV) ratio may need to be reassessed and new checks may need to be carried out by the lender to ensure that the remaining properties still meet the criteria.

Yes, using the equity in your portfolio is a good way to increase its size. For example, if your portfolio is valued at £1 million and you have an outstanding mortgage loan of £550,000, you have equity of £450,000. You can then borrow against that equity to invest in a new property without having to wait until you have saved a deposit. Being able to buy a new property with little or no deposit makes it easier to manage your cash flow. That new investment property can then start generating more income for you.

You can also use the equity to carry out refurbishment works on another property in your portfolio. The completed works should increase the property’s value, boosting the value of your overall portfolio.

Before using the equity to grow your portfolio, check the costs involved. These can include legal fees, remortgaging fees and early repayment charges. The latter, in particular, can be a significant cost if it applies so it’s important to check with your lender first. That way, you can weigh up the benefits of using the equity against the costs of doing so. 

There are a number of factors to consider when choosing a portfolio mortgage. As well as the interest rate you’re offered, look at the flexibility of the terms, the loan-to-value (LTV) ratio the lender is offering, the fees involved and the lender’s criteria.

For example, most lenders require you to have at least 2 years’ experience as a landlord. Some specify that you must already have experience managing a portfolio of properties. More experienced landlords generally benefit from better terms. On the other hand, some lenders are willing to accept applicants with little or no experience, so it’s important to find the right one for your situation.

How a lender assesses your affordability is also an important factor. Most require an interest coverage ratio (ICR) of 125%, although this figure can be increased to 145% or even 160% in some cases. If you’re in a position where you need to include your personal income in the affordability assessment, you’ll need a lender who allows top slicing.

If flexibility is more important to you, check that the lender offers tailored terms. For example, allowing you to add or remove properties from your portfolio without penalising you. Also, ask what incentives are offered, such as free valuations or legal fees. This can help to keep your initial costs down.

Our mortgage brokers will identify the lenders who are most suited to catering to your preferences. With exclusive access to deals, they’ll compare them in terms of rates, cost and flexibility to find the best ones for you. They’ll then negotiate on your behalf to secure a deal that specifically meets your needs as a portfolio landlord.