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Buy to Let Portfolio Mortgages UK

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 12th September 2019 *

There are 2.5 million landlords in the UK and successful investors have been able to establish a buy to let portfolio of a number of properties.

But changes by the Prudential Regulation Authority (PRA) have introduced new checks for buy-to-let portfolio mortgages. So, what are the new rules, and will they prevent you from being able to get buy-to-let mortgages across multiple properties?

Despite these changes there are lots of options out there for landlords and in this article, we look at how, with the right advice, it’s still possible to get buy-to-let (BTL) mortgages for multiple properties.

In this article we cover:

If you’re a landlord and want to know more about buy-to-let portfolio mortgages or you’ve got a couple of buy-to-let properties and wish to expand your portfolio, get in touch and we’ll match you with one of the expert advisors we work with.

The experts we work with are all whole-of-market brokers with access to mortgage lenders across the entire UK, so they're well placed to make sure you’re getting the right mortgage solution at the best possible price.

Call 0808 189 2301 or make an enquiry. The service we offer is free, there’s no obligation and we won’t leave a mark on your credit rating.

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How does a portfolio mortgage work?

If you’re a landlord, you can use a portfolio mortgage to hold all your buy-to-let mortgages under one mortgage umbrella.

It’s treated as one account, so instead of having separated lenders for each mortgage or property, the whole portfolio is managed by one lender with one monthly payment.

The portfolio is registered as a limited company and all costs and finances are treated as they would be with any other business.

From a lender’s point of view, a landlord would need a minimum of four properties to be eligible for a portfolio mortgage.

For example, if you were a landlord with eight properties on individual mortgages, you would have eight separate monthly payments to make to multiple lenders. The beauty of a portfolio mortgage is that you have a single mortgage payment each month, making things far easier to manage.

Instead of having to deal with multiple mortgage statements, a portfolio mortgage simplifies things with one statement and one monthly payment to one organisation.

If you’re a landlord with multiple properties, it’s not essential that you have a portfolio mortgage, but you may find life easier if you choose to use one.

The new rules regarding multiple buy-to-lets

Most mortgage lenders that offer buy-to-let mortgages are regulated by the Bank of England’s Prudential Regulation Authority (PRA). 

In September 2016, the PRA issued a number of rules to introduce new underwriting standards for these lenders, including stricter affordability tests and extra checks on portfolio landlord mortgages.

Affordability checks

In the past, mortgage lenders would calculate a buy-to-let mortgage based purely on rental income and deposit, but the new regulations mean that mortgage lenders need to apply more complex affordability assessments that also consider what level of tax you pay.

This is because of the increased tax burden that is being phased in for buy-to-let landlords in the coming years – take a look at the section on tax later in this article for more information.

On a buy-to-let mortgage, the rental income needs to cover at least 125% of a mortgage that is charged at 5.5% for basic rate taxpayers and for higher rate taxpayers, who will need to find the money to pay a larger tax bill this increases to 145% or even 160%.

Hypothetical Example

A £200,000 buy-to-let mortgage with interest calculated at 5.5% would have monthly interest payments of £916. This means that the monthly rental income must be at least £1,146 if a lender is basing its calculation on 125% and it might need to be as high as £1,466 if a lender is using 160%.

Portfolio landlords

The PRA considers that borrowers with four or more mortgaged buy-to-let properties should be treated as ‘portfolio landlords’. This means that you can get a second mortgage for buy-to-let, or even a third and not be considered to be a portfolio landlord. 

But if you own four or more buy-to-let properties with a mortgage, you’ll be subject to the new portfolio mortgage underwriting checks. These are sometimes known as portfolio mortgage stress testing.

As part of these checks, lenders will need to make sure that you are in a stable financial position. Different lenders have interpreted the rules in different ways, but they will all look at your entire buy-to-let portfolio, and are likely to consider:

  • Your experience as a landlord.
  • Details of your mortgages on all of your buy-to-let properties.
  • Your assets and liabilities, including tax liability.
  • Historic and future expected cash flow from your portfolio.
  • Your income both from property and other sources.

As different lenders have interpreted the rules in different ways, criteria can vary from lender to lender. This means that if, for example, you have five properties generating enough rent to cover the mortgage payments, but one property that isn’t, your new mortgage application may not be approved by one lender but could be approved by another.

Therefore, if you’re looking for a mortgage for portfolio landlords, it’s important to seek professional advice. The advisors we work with are all whole-of-market experts who can look at your portfolio of buy-to-let mortgages and identify the best option for your circumstances.

Call 0808 189 2301 or make an enquiry for a free, no obligation chat.

How many buy-to-let mortgages can you have?

The new rules apply stricter rules around getting multiple buy-to-let mortgages but, as long as you meet the criteria, there’s no limit to the maximum number of buy-to-let mortgages you can have. 

Different lenders may have their own rules about the maximum number of loans they can advance to an individual, but there are many portfolio mortgage lenders in the market that want to help you to grow your investment.

If you’re looking to grow your buy-to-let investment portfolio, it’s important to get your paperwork in order and keep an up-to-date spreadsheet of your property portfolio, so that you have all the information readily available when you speak to an advisor.

How tax rules affect buy-to-let profitability

One of the reasons calculating affordability on buy-to-let properties has become more complicated is because of changes to tax relief on the interest.

In addition to the extra 3% Stamp Duty Land Tax that homeowners now need to pay if they are buying an investment property or second home, these changes to tax relief will make running a buy-to-let investment more expensive. 

For buy-to-let portfolio landlords, these additional costs are an important part of assessing the portfolio.

What were the rules previously?

Prior to April 2017, the full cost of interest incurred on multiple buy-to-let mortgages could be deducted from gross rental income to reduce taxable rental profits. This deduction reduced the amount of rental income liable to income tax.

What are the rules now?

The tax relief on buy-to-let mortgage interest is being gradually reduced and will be completely removed in 2020, which will increase the tax bill for investors with a portfolio of mortgage loans.

If you’re looking at growing your number of buy-to-let portfolio mortgages it’s a good idea to seek the advice of a property tax specialist.

How to finance buy-to-let mortgages for multiple properties?

If you're looking to increase your buy-to-let portfolio lending, a conversation with an expert mortgage advisor will help you to understand the best way for you to take on multiple buy-to-lets, taking your full circumstances into account.

One of the options available to you will be to purchase the buy-to-let properties using a limited company rather than in your own name.

Should I use a limited company

In some circumstances, it can be beneficial for tax reasons for buy-to-let investors to finance multiple buy-to-let mortgages using a limited company. 

There are two types of limited company, a trading company or a Special Purpose Vehicle (SPV).

The most common way for buy-to-let investors to buy with a limited company is with an SPV. There are many more lenders in this part of the market than there used to be and there are plenty of lending options for both. 

Therefore, buy-to-let mortgages for limited companies are now often available at similar rates for individuals looking for multiple buy-to-let mortgages.

Buy-to-let mortgage lenders for limited companies will often apply a lower minimum rental stress test than they do for individuals who are higher rate taxpayers, because of the tax advantages associated with buying in a limited company.

How many buy-to-let mortgages can I get using a limited company?

There are no limits to the number of buy-to-let mortgages you can hold within a limited company. However, the same rules will apply when a lender is assessing your entire portfolio as part of the application, and some lenders have a limit on the exposure they are willing to take for one company and can restrict the total number of mortgages or properties.

How to finance a buy-to-let portfolio

There are lots of buy-to-let portfolio lenders in the market that want to help landlords to increase the size of their investment. Whether you’re looking for a second buy-to-let mortgage or to build a large portfolio, there are a couple of things you should think about:

Deposit

Unless you’re buying an investment property in cash, you will need to put down a deposit. 

The minimum deposit you’ll require for a buy-to-let mortgage is usually 15% (although many lenders insist on 25%) and it’s possible to raise this with a remortgage on your main residential property (buy-to-let second mortgage), or other buy-to-lets within your portfolio.

Equity

If you’re remortgaging one property to grow your portfolio, the first thing to think about is how much equity you currently have in that property. 

The level of equity you have is equal to the value of your property minus the balance of the existing mortgage.

Lenders express the amount of a property on which they are willing to lend as loan to value (LTV). This is the balance of the mortgage that is secured on the property, as a percentage of the value.

If you’re remortgaging your main residential property to raise money for a buy-to-let mortgage, depending on your circumstances, some lenders will be able to lend up to 95% loan to value,.

Hypothetical Example

If your home is currently worth £500,000 and you have a mortgage of £250,000, your current loan to value is 50% and you have £250,000 of equity in your property. If you wanted to release this equity to buy another property, you could potentially borrow up to £475,000, which would provide you with £225,000 for the purchase and take your LTV to 95%.

Lenders are generally more comfortable with lower LTV loans, so you’ll have fewer options, and can expect to pay a higher rate, if you want a mortgage with a higher LTV.

The maximum LTV you can borrow also depends on your circumstances, such as your age and credit history, and the purpose for the loan. Whereas the maximum LTV on a standard residential mortgage is 95% the maximum LTV for a buy-to-let mortgage is 85%.

How to get a portfolio landlord mortgage

There are now a number of mortgages for portfolio landlords that enable you to secure a mortgage against more than one property in your portfolio, allowing you to raise the equity you need to help you to buy another property.

Hypothetical Example

Say you have five buy-to-let properties and each one is worth £200,000. On all of these properties, you have a 75% LTV mortgage. Remortgaging one property to 85% LTV would only provide you with £20,000, which may not be enough for a deposit on a new buy-to-let property. However, if you were able to secure a mortgage across the portfolio and raise the LTV on each of the five properties to 80%, you could raise £50,000 towards your next investment property.

Affordability for portfolio mortgages

Buy-to-let affordability models are based on a combination of the rental income the property can achieve and your circumstances. 

For buy-to-let portfolio lending, a mortgage lender will look at your whole portfolio to make sure you’re not over-stretching when it comes to borrowing.

A lender may also look at your other assets, liabilities and income. However, there are also portfolio mortgage lenders that do not require a minimum income outside of your buy-to-let investment. These are sometimes known as buy-to-let mortgages for professional landlords.

For many lenders, if you are a basic rate taxpayer or buying with a limited company, the rental income has to cover at least 125% of the mortgage, assuming the mortgage is charged at 5.5%. For higher rate taxpayers, this increases to 145% or 160%.

Hypothetical Example

Buy-to-let mortgage balance = £150,000

Interest calculated at 5.5%

Monthly interest payments = £687

This means the monthly rental income would need to be:

125% (basic rate taxpayer) £860
145% (higher rate taxpayer) £996
160% (top rate taxpayer) £1,100

“Top-slicing” with personal income can help you borrow more

If the rental income isn’t sufficient then the maximum loan available will reduce to fit the calculation. 

Some lenders allow you to supplement the achievable rental income with your personal income. 

This is sometimes known as top slicing - a landlord uses other earned personal income to top up shortfalls in buy-to-let affordability.

There are many mortgage options for buy-to-let landlords who are looking for the best portfolio mortgage rates, but there’s now a lot more to consider when choosing the right mortgage for you. We work with specialist buy-to-let advisors, who can guide you through the process and help you figure out the best mortgage solution for your circumstances and then help you find the lender with the most competitive rates. 

Buy-to-let portfolio mortgages for people with bad credit

We’re often asked the question “how many buy-to-let mortgages can one person have if they have credit problems?”.

The answer is that bad credit doesn’t have to prevent you from becoming a buy-to-let mortgage portfolio landlord, depending what type of credit problems you have had and how recently you have had them.

A lender will ask what the issue was, how long ago it was, how much it was for and whether it has been repaid. Some lenders will also ask for an explanation about previous credit problems to help them to understand whether these were one-off events or are likely to happen again.

Choices of buy-to-let mortgages for borrowers with bad credit may be more limited, and rates are likely to be higher but, in the right circumstances, there should be options for you even if your credit record features:

  • Late payments & arrears
  • Defaults & CCJs
  • Debt Management Plans
  • IVAs & Bankruptcy

We work with specialist advisors who are experts in the buy-to-let market and understand all the options for landlords with bad credit. And, because all the experts we work with are whole-of-market brokers, they know which specialist mortgage lenders are likely to offer the best deals to you.

Call 0808 189 2301 or make an enquiry for a free, no obligation chat.

Property types

Buy-to-let portfolio mortgage products are available on most standard construction terraced/semi/detached houses and purpose-built flats. 

Options may be more limited for investors who want to purchase a studio flat, ex-council property or a property of non-standard construction (e.g. buildings made from unusual materials such as concrete or timber). This is another area where it is important that you choose a lender that is able to lend on your property.

Personal circumstances

The minimum age for most lenders is 18. For older borrowers who are considering multiple buy-to-let mortgages, lenders may stipulate a maximum age at application or a maximum age at the end of the mortgage term, but there are many buy to let lenders that do not have a maximum age

Best areas for a property portfolio in the UK

Scottish mortgage portfolios are becoming increasingly popular, as more and more people are heading north to take advantage of the price gap between English and Scottish cities.

According to Hometrack, the average price (September 2019) in Edinburgh was £236,900, compared to London’s £483,000. Glasgow fares even better with an average price of just £124,800, so you could potentially own four buy-to-lets for the price of one in London.

This makes Scotland an attractive proposition for BTL, but bear in mind that Scotland has different laws regarding the purchase of properties, such as the requirement that you have to register your property with the local council before you can rent it out.

You need expert advice, so talk with one of the advisors we work with to get all the ins and outs of purchasing a buy-to-let in Scotland.

Portfolio insurance

If you have a number of portfolio mortgages, portfolio insurance could potentially save you time and money. 

With portfolio insurance, you can arrange buildings and contents cover across a number or properties, so you don’t have to spend a lot of time getting individual quotes and policies for each address. This can often be more convenient and more economical. 

We work with specialist insurance experts who will be able to talk you through the best options for your circumstances and, because they’re independent, they’ll work to find you the most competitively priced cover for you too.

Speak to an expert about buy-to-let portfolio mortgages

If you’re a professional landlord looking at buy-to-let mortgages, or you want to know more about portfolio mortgage requirements, send us an enquiry and one of the buy-to-let specialists will contact you ASAP. Alternatively, give us a call on 0808 189 2301.

The service we offer is free and there’s no obligation. All the experts we work with are whole-of-market experts with access to all the mortgage lenders across the entire buy-to-let market. They will save you time, money and a whole heap of hassle by finding you the best mortgage solutions at the most competitive price available.


Updated: 12th September 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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