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Buy to Let Portfolio Mortgages UK
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There are now 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 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 is still possible to get buy to let mortgages for multiple properties.
In this article we will cover:
- The new rules regarding multiple BTL
- Portfolio landlords
- How many buy to let properties you can have?
- How new tax rules will affect BTL profitability
- How to finance your BTL
- Is forming a Ltd company beneficial?
- Can you use a second mortgage for buy to let?
- Will bad credit have an effect?
- Best areas for portfolio mortgages UK
- The importance of insurance
Most 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.
It used to be the case, that lenders would calculate a buy to let mortgage based purely on rental income and deposit, but the new regulations mean that 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 BTL 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%.
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%.
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, then you will 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. So, for example, if 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.
If you are looking for a mortgage for portfolio landlords, it is therefore important to seek the advice of a professional. We work with expert advisors who can look at your portfolio of Buy to Let mortgages and identify the best option for your circumstances.
How many Buy to Let mortgages can you have?
The new rules put stricter criteria around getting multiple Buy to Let mortgages but, if the question is, “How many buy to let mortgages can I have in the UK?” ; as long as you meet the criteria, there is no limit to the maximum number of Buy to Let mortgages that 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 are looking to grow your Buy to Let investment portfolio, it is 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 at hand when you speak to an advisor.
Let’s talk about tax
One of the reasons that calculating affordability on Buy to Let properties has become more complicated is because of changes to tax relief on Buy to Let mortgage 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 costlier. For Buy to Let portfolio landlords, these extra 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 are looking at growing your number of Buy to Let portfolio mortgages it is a good idea to seek the advice of a property tax specialist.
So, what is the best way to finance buy to let mortgages for multiple properties now?
If you are looking to increase your BTL portfolio lending a conversation with an expert mortgage advisor will help you to understand the best way to take on multiple Buy to Lets for your circumstances.
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.
Buy to Let portfolio mortgages – 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. For this reason, buy to let mortgages for limited companies are now often available at similar rates for individuals looking for multiple buy to let mortgages.
But 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, but the same rules will apply about a lender 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/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 are looking for a second Buy to Let mortgage or to build a large portfolio, there are a number of things you should think about:
Unless you are buying an investment property in cash, you will need to put down a deposit. The minimum deposit you will require for a Buy to Let mortgage is usually 15% (although many lenders insist on 25%) and it is possible to raise this with a remortgage on your main residential property (this is a buy to let second mortgage), or other Buy to Lets within your portfolio.
If you are 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 are remortgaging your main residential property to raise money for a Buy to Let mortgage, there are currently lenders that will be able to lend up to 95% loan to value, depending on your circumstances.
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 and so you will have fewer options, and can expect to pay a higher rate, if you want a mortgage with a higher LTV.
The maximum LTV is you 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%.
Portfolio landlord mortgages.
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, which enables you to raise the equity you need to help you to buy another property.
Say you have 5 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 5 properties to 80%, you could raise £50,000 towards your next investment property.
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 that you are not over-stretching when it comes to borrowing.
A lender may also look at your other assets and liabilities and other income. There are, however, 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%.
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 is not sufficient then the maximum loan available will reduce to fit the calculation. There are, however, some lenders that allow you to supplement the achievable rental income with your personal income. This is sometimes known as top slicing and is where 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 is now a lot more to consider when you are choosing the right mortgage for you. We work with specialist Buy to Let advisors, who can guide you through the process"bad-credit and to choose the right option for your circumstances.
BTL portfolio mortgages for people with bad credit
We are 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 the Buy to Let market and the options for landlords with bad credit and they can source the best deals that are available for you.
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 that is made from unusual materials such as concrete or timber and this is another area where it is important that you choose a lender that is able to lend on your property.
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 price gap between English and Scottish cities.
According to Hometrack, the average price (at time of writing in June 2018) in Edinburgh was £206,000, compared to London’s £492,000. Glasgow fares even better with an average price of just £117,000, 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.
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 advisors who will be able to talk you through the best options for your circumstances.
Make a portfolio BTL enquiry
If you are 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 0800 304 7880.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
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.
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.
Buy To Let Mortgage Information
Looking for specialist advice? Read through our articles about different types of buy to let situations, and how best to prepare yourself to find the right mortgage for you