What is a Portfolio Loan Mortgage?
A portfolio loan mortgage allows landlords to put all their Buy to Let properties under one mortgage, which is then managed as one account with one monthly repayment. The whole portfolio is looked after by one lender, making it easier for the landlord to keep track of their investments.
A portfolio landlord must have at least four rental properties with Buy to Let mortgages, and they can be of varying types – for example, the portfolio can include a mixture of Buy to Let, holiday let, HMO and multi-unit freehold properties, if needs be.
There is no upper limit to how many properties can be included in the portfolio, although some lenders will put their own limits in place according to the number of properties or the total mortgage value. Lending criteria will vary from lender to lender, but the minimum number of rental properties is always four.
Who can get a portfolio loan mortgage?
Portfolio loan mortgages are for investment property owners who have four or more rental properties within their portfolio. All four (or more) of the properties must have Buy to Let mortgages in order to be considered part of the portfolio. This type of mortgage is not available to landlords with fewer properties to their name.
What’s the difference between a professional landlord and a portfolio landlord?
A professional landlord is someone whose main source of income is from rental properties and their rental income. If you have a Buy to Let property alongside another job or income source, you may be referred to as an ‘amateur landlord’.
As mentioned above, to be a portfolio landlord, you must have at least four rental properties which make up your main source of income, and many professional landlords are classed in this way.
What’s the best way to build a Buy to Let portfolio?
If you want to build a Buy to Let portfolio, you will usually need to start with the purchase of one rental property. Once you have raised enough money for a deposit on the next property, you can then take out another mortgage for this Buy to Let alongside your initial loan.
Landlords will often look to remortgage or release equity from their portfolio properties when house prices increase in order to raise additional funds for new purchase deposits.
What are the benefits of securing a portfolio loan mortgage?
As with any financial product, there are always pros and cons. But when it comes to portfolio loan mortgages, there are plenty of reasons why you may feel they’re a good option for your situation.
They can help to simplify your finances
Instead of having multiple lenders with multiple monthly payments and statements, you can consolidate all your mortgages into one, meaning you can spend less time managing your portfolio each month.
You can use the equity you gain to grow your portfolio
One thing that many people don’t realise is that the equity that you hold in your portfolio can be used to grow it further. For example, if you have a portfolio that’s valued at £1 million and your outstanding mortgage is £450,000, you’d have £550,000 in equity which can then be borrowed against.
You may find it easier to get accepted by a lender
You could well find that it’s easier to qualify for a mortgage loan from a portfolio lender than a traditional lender, as they will not have to meet specific (and often stringent) underwriting guidelines, such as minimum income requirements.
As a portfolio lender keeps loans on their balance sheet instead of selling them, they have more flexibility over who is approved, which can be to your benefit.
They are often subject to more accommodating criteria
As well as having fewer restrictions on eligibility criteria, portfolio lenders are usually small, privately owned community banks that have a lot more flexibility than larger finance providers. This makes it easier for them to change loan terms to fit in with their customer’s needs and financial circumstances, making it easier for more people to be accepted – like you!
You can increase your borrowing power
If you have a poorly performing property within your portfolio, this can be seen as a risk for lenders and negatively impact your ability to take out another mortgage in the future. If all your properties are together under one mortgage, then your better performing properties can compensate the poorer ones, which will come in handy when lenders are assessing your income and expenditure as a whole. This can help to increase the maximum amount that you can borrow in the future.
You may be able to purchase a broader range of properties
Mortgages created for portfolio landlords are usually quite scalable in the sense that there is often no limit on the number of properties that can be purchased, and no rules on what condition the property needs to be in. This means that you’re more likely to be accepted for a mortgage on homes that need full renovations, putting you in a more advantageous position than other buyers on the market who may not be able to get a loan against a property without a working kitchen or bathroom, for example.
What are the disadvantages of taking out a portfolio loan mortgage?
They usually present higher interest rates
Typically, you will be charged higher interest rates when you take out a portfolio loan mortgage; these will be used to offset some of the risk that the deal poses to the lender. As portfolio mortgage lenders do not have the opportunity to resell the debt in the secondary market, they may charge higher rates to cover any potential costs that could arise on their side.
They’re not always that flexible
Portfolio loans are designed to be held by the lender until the mortgaged property has been sold or refinanced. However, the lender may still want the opportunity to sell the loan in future. This means that the borrower will still need to meet many of the more typical underwriting requirements. In these cases, there may be little advantage to taking out this kind of product.
There are prepayment fees
Many portfolio lenders charge a prepayment fee, which can increase the overall cost of the loan unexpectedly. It is possible to negotiate these fees, and this is why it can be helpful to work with an experienced mortgage broker who will be able to carry out these discussions on your behalf.
How to get a portfolio loan mortgage
This type of mortgage isn’t usually advertised. Instead, portfolio loan mortgages are often used as a bit of a perk for portfolio landlords. These agreements can help a lender get more business and can act as a means for rewarding their loyal customers. It’s worth shopping around to see who offers them and the kind of rates that are available.
If you have an existing relationship with any particular lender, you should speak to them first, as they’re more likely to offer you a good rate if you have a history of borrowing from them.
Alternatively, it can be beneficial to work with a specialist mortgage broker who will have experience working within this environment and be able to source the best deals for you. At CLS, we have relationships with a wide range of lenders and have access to thousands of deals that aren’t available elsewhere. We are always more than happy to have a discussion with you to find out more about your circumstances and find a mortgage that fits in with your needs – particularly if you own multiple Buy to Let properties.
Why are some properties easier to get a portfolio loan mortgage on than others?
The easiest properties to get a mortgage on are typically those that are the most accessible, such as traditional constructions that are either residential houses or purpose-built flats. You may find it more difficult to secure a mortgage if you want to purchase:
- Studio flats
- Ex-council properties
- Non-standard buildings (ie, those constructed using concrete or timber frames)
It’s important to work closely with a mortgage broker so that they can seek out the best lender for you, based on the type of property that you’re investing in.
What information will I need to provide to the lender?
To be accepted for a portfolio loan mortgage, your lender will ask you to provide a range of information about yourself and the property you’re purchasing. They may also wish to see a business plan and property schedule.
You will normally need to give them:
- Personal bank statements
- Proof of your ID and address
- Evidence of your earnings (via pay slips or a copy of your tax summary)
- Business bank statements (if you’re a limited company)
- Details of your existing portfolio
- A business plan for your proposed purchase
- Details of your assets and liabilities
Are there any age limits on portfolio loan mortgages?
You won’t be allowed to take out a portfolio loan mortgage unless you are aged 18 or above, and the lender may also impose upper age limits for more mature borrowers, as they can be seen as riskier than younger applicants.
Not all lenders have upper limits, so if you are looking to invest in more Buy to Let properties later in life, it’s important to work closely with a specialist mortgage broker who will be able to find the right deal for your circumstances.
Will I need insurance for my property portfolio?
It’s not a legal requirement but it can be a good idea to insure your portfolio to protect against any unexpected expenses and issues in the future. Property portfolio insurance is a valuable asset and will usually cover buildings and/or contents across multiple premises, which, in the same way as a portfolio mortgage, makes it easier to manage and more cost-effective than looking after each insurance policy separately.
At CLS, we work with a range of trusted insurance providers and would be happy to arrange an introduction if this is something you’re interested in.
How our process works
We make getting a mortgage as quick and simple for you as we can. To get started, get in touch with our team to arrange your free, no-obligation consultation, during which we’ll gain an understanding of your situation, talk you through your options, and start searching the market for a portfolio loan mortgage that offers suitably competitive and sustainable rates.
We’re happy to take over the application process for you, meaning you can rest safe in the knowledge that your mortgage is being dealt with by the professionals. We will provide regular updates so you can keep track of your application status, and we will gladly answer any questions you may have throughout your journey with us.
We also offer face-to-face mortgage advice throughout Essex and the South East of England, as well as an online mortgage advisor service via telephone and email to customers throughout the UK.