If you’re a landlord with multiple properties you may be in need of a portfolio mortgage and not realise it.
Portfolio mortgages are only available to landlords with four or more properties. If you have fewer properties than this, you won’t be considered eligible.
In this guide, we will go into further detail about portfolio mortgages, including information on how they work and the advantages of this type of mortgage.
Keep reading to learn more and then get in touch with a mortgage broker at YesCanDo Money if you have any questions after reading this guide.
What is a Portfolio Landlord?
As far as mortgage lenders are concerned, a portfolio landlord is somebody with a buy-to-let portfolio of at least four mortgage properties. These can be privately owned or purchased through a limited company.
You won’t be considered a portfolio landlord if you have only one buy-to-let property or you don’t have at least four properties with a mortgage.
What is a portfolio mortgage?
Rather than being a specific product a buy-to-let portfolio mortgage is a term used by mortgage lenders for landlords who have at least four mortgages on buy-to-let properties and are now seeking extra borrowing to expand their portfolio.
Landlords don’t have to take out a portfolio mortgage as it is entirely optional. But as portfolio mortgages rule out the need for multiple payments to multiple lenders, many landlords are now placing their portfolios under limited companies as their lives can be made easier.
How does a portfolio mortgage work?
Portfolio mortgages work in much the same way as buy-to-let mortgages. They are both:
- Secured on rental properties
- Usually interest only
However, there are a few key differences as listed below.
- Properties are managed on a portfolio level and not at an individual asset level
- The portfolio needs to be registered as a limited company
- Portfolio mortgage rates are calculated as an average of the separate rates that have been applied to individual properties
- Monthly payments and fees cover the whole portfolio instead of each individual property
- Lender assessments are based on the entire portfolio rather than one buy-to-let property
Is a portfolio mortgage right for you?
As with any type of mortgage, you should weigh up the pros and cons of portfolio mortgages before making your application. There are definite reasons why they might be right for you, especially if you have a large number of properties, but if you’re unsure of your eligibility and need of a portfolio mortgage, get in touch with our team for further advice.
Advantages of having a portfolio mortgage
There are some valuable advantages to getting portfolio mortgages for your buy-to-lets rather than buy-to-let mortgages. We explain some of these advantages below.
You can simplify your finances
You can choose to have a buy-to-let mortgage for each of your properties but if you go down this route, you will need to make multiple monthly payments. This can make life harder for you as you will need to keep track of all of these expenses.
As such, you might want to choose a portfolio mortgage instead. This way, your financial situation will be simplified as only a single monthly payment is required when paying your mortgage.
You can make your portfolio tax efficient
Investing in buy-to-let properties isn’t as tax efficient as it used to be as changes in tax laws have meant a reduction in tax relief. But by placing a portfolio under a limited company and by moving to a single portfolio mortgage, you can benefit from a lower rate of corporation tax as more of your outgoings can be classed as expenses.
Less hassle when setting up your mortgage
If you were to take out multiple mortgages, not only would have to make several applications but you would have to manage multiple sets of fees too. This can make life much harder for you in terms of your time and your finances.
But if you were to take out one mortgage that covered your whole portfolio, you would only have to deal with the paperwork for one application and you would have fewer fees to contend with.
You can boost your borrowing power
If you ever want to borrow more money from a lender, your borrowing potential could be affected if they consider your properties on a case-by-case basis. If you have any underperforming properties, these will be seen as red flags by the lender and they might reject your loan application, reduce the loan amount they offer you, or give you a loan with a higher rate of interest.
However, if your entire property portfolio is under one mortgage, lenders will consider your whole income instead of the income received from individual properties. So even if some of your properties are underperforming, the maximum loan you are offered could be higher if your well-performing properties offset those that are doing badly.
Disadvantages of having a portfolio mortgage
There are some disadvantages to getting portfolio mortgages for your buy-to-lets, we list some of these disadvantages below.
Fewer lenders to choose from
Portfolio mortgages can be attractive but when shopping around, you will notice that very few lenders offer them. This can make life difficult for you as you may struggle to find a lender that will give you a portfolio mortgage for your mortgaged rental properties.
Of course, if you choose to use the services of a mortgage broker, such as ourselves, your life can be made so much easier. As we know which lenders offer portfolio mortgages, we will be able to put you in touch with these if you decide to use our services.
Mortgage rates are sometimes higher
As there are only a few buy-to-let lenders that offer portfolio mortgages, rates are less competitive. As such, it can sometimes be cheaper to mortgage your properties separately if you’re looking to save money.
Less financial flexibility
Should you want to sell one or more of your properties, this could upset the LTV on your loan and the lender’s rent cover criteria. As a consequence, the lender might have to reassess your portfolio and come to a new agreement with you. This could have a negative knock-on effect on your finances. As such, it is sometimes better to wait until your mortgage term has ended before selling, despite the inconvenience.
If you do expect to sell a property sooner rather than later, it may be wiser to mortgage your properties on a variety of fixed terms and mortgage types instead of opting for one mortgage for your property portfolio. You can then sell your properties with fewer restrictions. The same applies if you want to remortgage any of them to release equity.
Your portfolio will need to be under a limited company
There will be financial repercussions for you when setting up a limited company. These include the expenses incurred when migrating your properties to your limited company and the administrative costs you will face when managing your company.
There are tax implications too as you will be subjected to corporation tax and capital gains tax if you decide to sell one of your properties.
Portfolio mortgage rates
When taking out a portfolio mortgage, your lender will look at the existing rates on each of your properties and will incorporate them to come up with one single mortgage rate.
Unfortunately, mortgage rates on properties bought under a limited company are often higher than those on properties that aren’t. This is to offset the risk to lenders as they sometimes find it difficult to retrieve debt when a limited company goes bust.
However, portfolio mortgages are becoming increasingly popular so lender fees are becoming more competitive. To take advantage of these, speak to a specialist mortgage broker, such as ourselves. We will search the market for the cheapest portfolio mortgage rates on your behalf and will point you in the direction of the portfolio mortgage lenders that are right for your situation.
What information do portfolio mortgage lenders ask for?
Portfolio lenders ask for the same information as traditional buy-to-let lenders, including…
- Personal bank statements
- Business bank statements
- ID and address evidence
- Proof of earnings (such as a copy of your tax summary)
But if you’re considering a portfolio mortgage, your specialist lender will also ask you to provide…
- A property schedule
- A business plan
- Details of your existing mortgage payments
- Details of assets and liabilities
This information is required for both solo and joint applications for a buy-to-let portfolio mortgage.
How do I improve my chances of being approved for a portfolio mortgage?
As part of their checks, your lender will need to make sure that you’re in a stable financial position. This is because they want to make sure you have the means to make your mortgage payments each month. The lender will consider the following before coming to a decision.
- Earnings, such as your rental income and any additional funds from other sources
- Assets and liabilities
- Your past and expected cash flow from your existing portfolio
- Your credit score
To increase your chances of getting a portfolio buy-to-let mortgage, and to ensure a higher maximum loan-to-value, you should…
- Increase your minimum income (you could do this by raising rental prices)
- Raise money for a larger deposit (to offset the risk to the lender)
- Keep a record of your accounts (an accountant can help)
- Improve your credit score
- Use the services of a mortgage broker
If you are turned down by one lender, that doesn’t mean you will be ruled out of a portfolio mortgage forever! Speak to us and we will find a lender that will treat you more favourably.
YesCanDo Money: Portfolio mortgage specialists
If you’re a landlord with 4 or more rental properties and you’re interested in portfolio landlord mortgages, get in touch with our expert team. We will give you mortgage advice based on your business and personal income and will let you know whether these types of mortgages are right for your situation.
If a portfolio mortgage is right for you, our experienced specialists will search the market for the portfolio lenders that are offering the best deals. We will then match you with the lender most likely to lend to you based on their eligibility criteria and we will support you with every aspect of your mortgage application.
Portfolio mortgages: FAQS
If you have 4 or more properties, you might want to consider a portfolio mortgage for financial simplicity and tax benefits. But if you don’t have at least four properties and you have no intention of increasing your portfolio, you will need to consider traditional buy-to-let mortgages instead. But are these worse than portfolio mortgages? Not necessarily.
As we mentioned, there are advantages and disadvantages to portfolio mortgages, so even if you meet the mortgage provider’s lending criteria, you should still weigh up your mortgage options. A specialist mortgage broker can provide mortgage advice and support so speak to a member of our team if you’re unsure about the best mortgage type for your situation.
A property portfolio can be made up of 2 or more properties. However, when talking about mortgages, portfolio landlords need 4 or more mortgaged properties if they want to be considered for a portfolio mortgage.
There is no legal limit on the maximum number of landlord mortgages you can take out but lenders will have their own criteria. Some will place a cap on the amount of BTL mortgages you can have with them so you may have to approach other lenders if you want to take out another mortgage.
Professional landlords are people whose main source of income is the rent they gather from their buy-to-let properties.
Portfolio landlords are people who own 4 or more buy-to-let properties.
If the majority of your earnings are made through a rental income and you own 4 or more buy-to-let properties, you will be considered both a professional landlord and a portfolio landlord.
Your buy-to-let portfolio can consist of a range of rental property types, including student homes, holiday lets, HMO (Houses in Multiple Occupation), and multi-unit freehold properties. Some lenders will have their own criteria for limited companies with buy-to lets so it is wise to seek the services of a specialist broker as they will let you know which mortgage providers are suitable for you.