Buy-to-Let Mortgages for Portfolio Landlords
Buy to Let mortgages are for people who are purchasing property as an investment to rent it out and profit from the rental income. Most buy-to-let mortgages are interest-only, meaning that you only pay off the interest of the mortgage rather than the amount owed (also known as the capital). The full mortgage is then paid off at the end of the mortgage term.
What is a portfolio landlord?
A portfolio landlord is someone who has four or more buy-to-let mortgaged properties. This will apply to someone who owns these properties on their own or jointly with other investors. If you own more than four rental properties, but less than four are mortgaged, you won’t be considered a portfolio landlord.
When you are considered by a lender, they will carry out several checks to understand whether you’re eligible for a portfolio mortgage. This is also known as stress testing. Different lenders will have different checks but will usually assess the following:
- How experienced you are as a landlord
- Details of other mortgages that you hold
- Proof of income and cash flow from your existing portfolio
- Proof of income from other areas
- Your assets and liabilities
It can be complicated to understand the different criteria, so it’s vital to engage with a professional mortgage broker to ensure you’re getting the right deal and you’re applying for a portfolio mortgage with the best rates. At CLS, we work with mortgage providers across the whole scope and have access to thousands of exclusive deals you cannot find anywhere else.
If you’d like to find out more about how we can help you, please get in touch.
Why do portfolio landlords need special mortgages?
If you have multiple rental properties within your portfolio, a specialist portfolio mortgage allows you to take out a single mortgage to cover all of them, meaning you don’t have to source and manage multiple agreements. This type of portfolio mortgage is treated as one account, meaning you have one lender, one monthly payment and one statement, making it much simpler for you to keep track of your outgoings.
Your portfolio of rental properties will be registered as a limited company, with all costs and finances treated as they would for any other business. Remember, you must have at least four mortgaged properties to be considered a portfolio landlord.
How does a portfolio landlord mortgage work?
In real terms, portfolio mortgages work in much the same way as normal buy-to-let mortgages in that they are secured on rental properties and usually on an interest-only basis. Once you reach four portfolio properties, you’ll need to take out a portfolio mortgage and add on any further properties you purchase with a mortgage after this, too.
You can use portfolio properties to finance:
- Normal Buy to Let purchases
- Auction properties
- Student Buy to Lets
- Limited company Buy to Lets (although you would need to take out a limited company portfolio mortgage for this)
- Multiple flats in one freehold
- HMO (Houses in Multiple Occupation)
What are the rules for owning multiple properties?
There are no strict rules on the number of buy-to-let properties that you can have within your portfolio, although you will need to have at least four mortgaged properties in order to be considered a portfolio landlord. Some lenders may have a cap on the number of properties they will provide cover for in one portfolio or the amount that is borrowed. It’s worth shopping around to understand the different limits.
This type of mortgage often requires more paperwork and documentation, so making multiple applications can be particularly time-consuming. We recommend working with a specialist mortgage broker who can prepare your documents on your behalf and take care of most of the heavy lifting. They can also help you to find the best deals and ideal mortgage lenders for your entire portfolio, not just your individual properties.
Are there any tax implications for having multiple properties?
Yes, there are. In addition to the extra 3% stamp duty land tax that homeowners need to pay on investment or second properties, a few changes have been made recently, which make managing a Buy to Let more expensive than it used to be. These additional costs are important in assessing a landlord’s property portfolio.
The tax relief that was previously in place for buy-to-let mortgage interest has now been removed (as of 6th April 2020), so this can no longer be deducted from your rental income. This effectively increases the tax bill for Buy to Let portfolio landlords.
If you are keen to grow your property portfolio, it’s always advisable to seek the advice of a property tax specialist who will be able to talk you through the process and highlight the regulations that could affect you.
We would also recommend you speak to a specialist accountant to understand the tax benefits and implications for your specific circumstances and mortgaged rental properties.
Can I purchase multiple properties as a limited company?
There are circumstances where it can be beneficial for buy-to-let landlords to finance multiple mortgages through a limited company, especially regarding tax purposes. There are two types of limited company that you can use:
- A trading company
- A special purpose vehicle (SPV)
The most common form is by using an SPV, a company formed specifically to undertake a business purpose or activity; in this case, purchasing and managing properties.
Although it used to be quite a complex process to take out this kind of mortgage, there are now plenty of specialists in the industry who are more than happy to help individuals who are looking for multiple Buy to Let mortgages purchased through a limited company. They will also often offer lower boundaries for stress testing than they would for individuals due to the tax advantages that you can gain from buying and managing investments through a limited company.
Can you use rental income to pay off your mortgage?
While you may not be able to use your rental income as proof of affordability whilst applying for your mortgage, how you pay it off is largely up to you (as long as everything is above board, of course!).
So yes, you can use your rental income to pay off your mortgage via your mortgage payments.
Can I take out a portfolio buy-to-let mortgage if I have a poor credit history?
Most mortgage providers would prefer for you to have a good credit history, as you will be seen as a lower risk for them. However, there are lenders out there who are more understanding in their lending criteria, and more than happy to take on customers with less-than-perfect credit history.
There are a whole host of things that can cause a poor credit rating, including:
- County Court Judgements (CCJs)
- Defaults on your credit file
- Too many hard searches on your credit file
- An IVA, DMP or DRO
Bad credit can even occur for people who just haven’t built up their credit history yet. Young adults with no previous experience of having finance may struggle to be considered for larger loans, while those who have recently moved to the UK might also need to work on their credit score for a while before they will become eligible for a mortgage.
Although having bad credit can make your options for a mortgage provider smaller, it doesn’t mean this is an impossible task. All lenders have different eligibility and lending criteria for their customers, which is why it’s so important to work with a specialist mortgage broker to ensure you get the best possible deal.
Can I remortgage to expand my buy-to-let portfolio?
Yes, although there are a few things that you should take into account before you decide to go down this route. Firstly, you should think about the amount of equity you currently have in the property. Most lenders will decide on the amount they’re willing to lend you based on the loan-to-value (LTV), which is the balance of the mortgage on the property as a percentage of the total value. For example, if you take out a mortgage of £200,000 on a £400,000 property, your LTV will be 50%, as will your equity in that property.
If you want to remortgage your main residential property to raise money for a Buy to Let mortgage, some lenders will allow you to borrow up to 95% LTV, although 85% is more common for Buy to Let mortgages. If you have enough equity within your property to allow you to borrow more, then many lenders will be comfortable doing this.
Your maximum LTV will be worked out based on your personal circumstances and will differ depending on which lender you use.
Applying for a portfolio mortgage
There are a few different factors that will be reviewed when you apply for a portfolio mortgage, and you may be asked for the following:
- Details of your credit history
- Other personal details (your age, occupation, address etc.)
- The details of the property you’re purchasing
- The details of other properties within your entire portfolio
- Details of your regular income/how you are planning on making your repayments
- Details about any other assets you own that you could secure funding against if necessary
At CLS, we want to make the process as quick and simple for you as possible. All you need to do is send us your details, and we will get in touch to arrange your free, no-obligation consultation.
We’re happy to take over the application process, meaning you can rest safe in the knowledge that your mortgage is being dealt with by the professionals. We will provide regular updates so that you know where you are in the process and can always answer any questions you may have throughout the journey.
We also offer face-to-face mortgage advice throughout Essex and the South East of England and an online mortgage advisor service via telephone and email to customers throughout the UK. Our offices are open late, making it even easier for you to get in touch when you need help.
If at any point you’d like to discuss your options with us, change any information or just want to talk anything through, our friendly team are always here to help.
How will my affordability be worked out?
This will be based on a combination of the expected rental income on the property and your own personal circumstances. The mortgage lender will take into account your whole portfolio and decide as to whether they believe you can afford to take on another property. The criteria for affordability will differ between lenders, which is why it’s so crucial to compare terms and rates from as many providers as you can before reaching a final decision.
They may consider your other assets, liabilities, and income. However, not all lenders require a minimum income outside of your buy-to-let investment, so it’s worth shopping around.
If you are a basic rate taxpayer or buying with a limited company, your rental income must be at least 25% over the amount you’re paying for your mortgage. If you’re a higher-rate taxpayer, this increases to 145% or 160%.
You can also potentially borrow more by using a ‘top-slicing’ technique, meaning that you can supplement your rental income with your personal income.
CLS are here to provide expert mortgage advice on all portfolio mortgages
If you’d like to find out more about which portfolio mortgages you could be approved for based on your situation, we’d be happy to help. Our fully qualified mortgage brokers have a huge amount of experience in this area and will be able to find you the best deals possible.