Buy to Let Portfolio Mortgage
Alan Lawes and Simon Farenden talk all about Buy to Let portfolio mortgages.
What is a Buy to Let portfolio mortgage and how do they work?
A Buy to Let portfolio mortgage is a product specifically designed for landlords who have four or more Buy to Let properties that are mortgaged.
The properties can be held in either personal names or through a limited company. These mortgage products tend to have slightly higher interest rates than standard Buy to Let mortgages, but it could be as little as a 0.5% difference.
Each lender tends to have two different products – a standard Buy to Let one and a portfolio product, the latter usually at a slightly higher rate. Lenders will apply a stress test to the monthly gross rental income, to assess the affordability of the mortgage. With a portfolio mortgage they’ll aggregate the Loan to Value across the whole portfolio to make sure that it fits within their criteria. Each lender takes a slightly different approach to that.
How many properties do you need before it becomes a portfolio?
It’s four or more mortgaged properties. If you have three properties already and come to us to buy your fourth Buy to Let property, we would look at a portfolio product for you. You can discount any properties that are mortgage free.
If for example someone has ten properties but only two with mortgages, they still don’t need a portfolio product mortgage product to buy a third.
How many Buy to Let mortgages can I get using a limited company?
There is actually no maximum number of Buy to Let mortgages for any landlord. I’ve been a mortgage broker for six years now and I’ve seen clients with more than 200 properties, all mortgaged.
But what you find is that the typical lenders in that space have a maximum of ten mortgaged properties each.
Banks that are part of a wider group will allow you to have ten across their group. For example, if you have five mortgages with Lloyds and five with Halifax – who are part of the same banking group – you’ll hit your maximum and then you have to find the next mortgage with a different lender or group.
Landlords with more than ten properties therefore tend to have their mortgages spread around lots of different lenders.
Is there lots of paperwork for a portfolio mortgage?
Often you will need to complete a portfolio spreadsheet, with details of all the properties. It’s a lot of information to trawl through, but once you’ve got it, it’s there. As brokers, we’ll store all that detail for you to make it easier to organise your next remortgage or get a new property.
We will have done the stress testing previously, so it’s much easier and much quicker to find a relevant deal that’s going to work for you.
What information do Buy to Let portfolio mortgage lenders ask for?
This varies from lender to lender, but they will all want to know more about your individual properties – the value of each property and any mortgages, the size of the mortgage payments and the rent you receive so that they can do an assessment of your overall situation.
They might ask, depending if you’re employed or self-employed, for proof of your income with payslips or the last 1-2 years accounts or tax returns. They might also want to see proof of your rental income. Some lenders will just view each property on its own merit – the mortgage on that property versus the rent you’re going to get.
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How is affordability calculated for portfolio mortgages?
Again this varies by lender. They do a stress test, looking at what would happen if interest rates rise in the future. As you may know, rates have been edging up this year. Lenders typically look at rates from 3.5% to to 5.5%, even though your current rate may be cheaper than that.
They want to explore whether the mortgage payments will still be manageable based on the rental income that you get from that property. Some people might choose interest only, other people might choose to do a full capital repayment mortgage. They’ll assess you accordingly.
When you’re a portfolio landlord, they are looking at the whole picture. They will be looking at your exposure with existing mortgages and rental income so that you’re not over committed.
How many payslips do I need for a Buy to Let mortgage?
Again, this varies lender to lender. Some may not need any, some might want to see the last three months payslips to get an idea of your earnings. Certain banks set a minimum earnings requirement to cover any potential shortfalls if the property is vacant for a month or two, while you find a new tenant or are doing some work, etc. Other banks don’t have a minimum income.
If you’re employed you might need three months’ payslips; if you’re self-employed they might request the most recent year’s tax return or accounts. Some might even ask for both.
How can a mortgage broker like Yellow Brick Mortgages help?
As you’ve just heard, it’s a bit of a minefield in terms of how lenders view different circumstances. It’s much easier to use a broker like ourselves. We’ve been doing this a long time and have access to specialist lenders that only deal with intermediaries. That gives you more options that wouldn’t be available to you direct.
Also there’s a lot of a variation in terms of the way that the lenders treat different client situations. So with our experience and knowledge, we can simplify the process. Behind the scenes we do a lot of work, but from a client’s point of view, you will simply get a solution based on what’s best for you and your situation. It makes your life much easier.
The biggest benefit is knowing you’re definitely getting the right mortgage available for what you need.
Any final advice for portfolio landlords?
Anyone who is looking at building up a Buy to Let portfolio should find a good tax adviser. An accountant is essential to help you avoid pitfalls further down the line – such as increased income tax and capital gains tax.
A lot of people don’t realise until it’s too late, for example, that if they buy a property in their own name it affects their income tax. Then, they try to swap it over to a limited company. But to do this you have to sell the property to the business, which then incur stamp duty costs as well.
It’s much better to get it right first time. Get advice upfront before embarking on the journey. Even getting things wrong on your first property could cost you thousands of pounds further down the line.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
For specialist tax advice, please refer to an accountant or tax specialist.