66 . 7 %

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: 16th October 2020*

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

In this article, we look at how portfolio mortgages work, what the rules are for owning multiple properties, and how you can find lenders offering buy-to-let 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.

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 buy to let 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 and we’ll match you with someone shortly.

We’ll find the perfect mortgage broker for you - for free

Save time and money with an expert mortgage broker who specialises in cases like yours

  • We've helped over 120,000 get the right advice
  • Our form only takes a minute, then let us do the hard work
  • Save up to £400 per year with the right advice (source: FCA)
  • All the brokers we work with have whole of market access

What is a portfolio mortgage?

A portfolio mortgage is a product designed for buy-to-let landlords with multiple investment properties. It allows them to take out a single mortgage to cover all of their properties, rather than have multiple mortgages to service.

How does a portfolio mortgage work?

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 separate lenders for each mortgage or property, the whole portfolio is managed by one lender with one monthly payment and one statement.

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.

What are the rules for owning 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.

Because mortgage lenders will require more documentation from you, this could mean more time-consuming applications and slower decision-making. However, you can help speed up the process by working with a broker and preparing your documentation prior to your application.

What do mortgage affordability checks for buy-to-lets involve?

In the past, mortgage lenders would calculate a buy-to-let mortgage-based purely on rental income and deposit. However, mortgage lenders also need to apply more complex affordability assessments that also consider what level of tax you pay. This is because the tax demands for buy-to-let landlords have increased, so they need to make sure that you will be able to meet your payments comfortably.

For example, with a buy-to-let mortgage, the rental income needs to cover at least 125% for a basic-rate taxpayer, while an additional or higher-rate taxpayer needs 145% or even 160%. Also, the ‘stress test rate’ (which is the interest rate used to measure borrowing affordability) has increased to 5% or even 5.5% in some cases.

Here’s an example of how the stress test works:

A £200,000 property with an assumed interest at 5.5% would have monthly interest payments of £916 (5.5% of £200,000 = £11,000 / 12 months = £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%.

What is classed as a ‘portfolio landlord’?

If you have four or more mortgaged properties, you’re classed as a portfolio landlord.

You’re not a portfolio landlord if:

  • You own three investment properties
  • You own five investment properties but only three are mortgaged

If you do have 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 the 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.

Make an enquiry and we’ll match you with a mortgage advisor for free, no-obligation chat.

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

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 do tax rules affect buy-to-let profitability?

One of the reasons why 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 need to pay if they are buying an investment property or second home, the 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 will be completely removed by April 6th 2020, so you won’t be able to deduct any of your mortgage expenses from your rental income. This will increase the tax bill for investors with a portfolio of mortgage loans. However, this change only affects private landlords.

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 can I get 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 buy-to-let properties using a limited company rather than in your own name.

Should I get a portfolio mortgage through 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 and managing through 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 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 can I finance a buy-to-let portfolio?

There are plenty of mortgage lenders that want to help landlords secure portfolio mortgages to simplify their finances and potentially 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.

For 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%.

Mortgage lenders are generally more comfortable with lower loan-to-value mortgages 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 loan-to-value you could 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%.

Which lenders offer portfolio mortgage?

Portfolio mortgages are offered by a variety of lenders, and each lender has its own lending criteria that must be met by the applicant.

A select number of high street mortgage lenders can also consider portfolio mortgage applications. These include:

Consider client’s personal and rental income as well as ongoing credit commitments. Underwriters will assess speed of portfolio build and capital appreciation, tenant quality and occupancy levels, use of letting/management agents, portfolio strategy and future funding requirements.

Mortgage Lender Lending criteria for portfolio mortgage
Natwest Must have 4+ mortgaged or unencumbered properties. Excludes properties held in a limited company. Information required in relation to landlords’ experience, use of letting agents and future plans to expand or reduce their portfolio.
Santander Don’t accept portfolio landlords unless the applicant is remortgaging without capital raising and meets their eligibility criteria for transitional arrangements.
Virgin Min. 24 months in letting property at time of application. No more than 5 properties in same postcode region. Personal income not accepted to cover any shortfalls, though income verification needed.
Barclays Consider client’s personal and rental income as well as ongoing credit commitments. Underwriters will assess speed of portfolio build and capital appreciation, tenant quality and occupancy levels, use of letting/management agents, portfolio strategy and future funding requirements.

Information correct at time of writing. For up-to-date lending criteria, speak with a broker.

Some mortgage lenders will set a limit on the number of properties you can own in a portfolio as a private landlord. For example, Mansfield Building Society will only accept applicants with 15 or fewer properties.

Others will restrict the types of properties – Nottingham, for example, does not lend on buy-to-let flats or single title multi-unit properties, and houses of multiple occupation (HMOs) cannot make up more than 25% of an applicant’s portfolio.

To find a mortgage lender who can cater for your circumstances, make an enquiry. The experts we work with have ‘whole-of-market’ access, allowing them to search for and compare different mortgage lenders to find the right deal for you.

How is affordability calculated 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 yourself 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%.

Here’s an example of how your tax bracket affects monthly rental income:

Tax rate BTL mortgage balance Interest stress rate Monthly interest payments Monthly rental income
125% (basic rate taxpayer) £150,000 5.5% £687 £860
145% higher rate taxpayer) £150,000 5.5% £687 £996
160% (top rate taxpayer) £150,000 5.5% £687 £1,100

The above is for demonstration purposes only. For a more accurate figure, speak with a broker.

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

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

Some mortgage lenders allow you to supplement the achievable rental income with your personal income. This is sometimes known as ‘top slicing’, which is when 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. Make an enquiry to find out more.

Can I get a buy-to-let portfolio with bad credit?

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 mortgage 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 could be options available with the following bad credit:

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 bad credit mortgage lenders are likely to offer the best deals to you.

Make an enquiry and we’ll match you with an expert shortly.

What property types can I get?

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.

What are the age restrictions around portfolio mortgages?

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.

What are the best areas to set up 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 an advisor to get all the ins and outs of purchasing a buy-to-let in Scotland.

Do I need insurance for my propery portfolio?

While it’s not a legal requirement, 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.

Make an enquiry to get started.

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

If you’re a 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 we work with will contact you shortly.

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.

Updated: 16th October 2020
OnlineMortgageAdvisor 2020 ©

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 information 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.