Buy to Let Portfolio Mortgage

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Buy to Let Portfolio Mortgage

All about mortgages for Buy to Let Portfolio Mortgage with Joe Eden.

What is a Buy to Let portfolio mortgage and how do they work?

There are two elements here: first, is that you could be a Buy to Let portfolio landlord and second, you can get Buy to Let portfolio mortgages. 

A portfolio landlord is defined by the Prudential Regulation Authority as someone who has four or more properties. Once you have four Buy to Lets lenders start to treat you differently.

A portfolio Buy to Let mortgage is literally a mortgage secured across multiple properties in your portfolio. So they are two slightly different things, both of which are relevant when you’re looking at either starting or growing your portfolio.

Do you have to have a portfolio mortgage once you have four properties?

No. We’ve got clients that we’ve done dozens of mortgages for, and most of them are with different providers. Every time we go to remortgage or they buy another property it’s with a different lender. But some landlords don’t like to have lots of different mortgage lenders. 

Essentially, you could get a portfolio mortgage on as little as two properties. It gives you one single mortgage on multiple properties and only one lender to deal with. You’ve got one fixed rate. If you do a two or three or five year fixed rate, that just finishes on one single day – whereas if you got five properties with five different lenders they could all finish on different dates, which can be more of a headache. 

How many Buy to Let mortgages can I get using a limited company?

There isn’t a limit. The lenders in that space typically have big exposure levels, so they usually lend a substantial amount before they feel overexposed to you as an individual or to your company. Some lenders will allow you to have 20 mortgages with them. They might set a limit of £10 million in borrowing across all your properties. 

Even when you reach that limit, which is rare, we would just move on to the next lender. But because lenders are always changing their products, it’s rare that you get to the point where a client is too exposed with one particular lender. It can happen if you’re buying in very affluent areas. 

Someone buying in prime central London, such as Knightsbridge, with very high-end, high value properties, or someone buying large blocks of apartments will reach that limit more quickly, but it’s quite rare for landlords buying single units to hit those parameters with one lender.

How do I go about building a Buy to Let portfolio?

The most obvious point is to start by finding the cash. Typically you need a 25% deposit for a Buy to Let property. Some lenders will allow you to buy with a 20% deposit but 25% is typical. Sometimes that’s the hardest step.

In terms of strategy and building a portfolio, we’ve got clients with many different strategies. A very popular one is Buy-Refurbish-Refinance. We’ve seen clients have good success with this.  It gives you a pot of money that you can continue to grow. How it works is that you buy a property that needs work, whether that’s an extension, a new kitchen or new bathroom. 

You might buy something at £100,000, spend £10,000 on a refurbishment and you’ve increased the value to £150,000. We would then remortgage that property based on the new value at 75% Loan to Value with 25% equity – and you can usually pull some of your initial investment back out to invest in the next property. We’ve had clients grow their portfolios relatively quickly this way. 

Other than that, the strategy is to save up your first 25% deposit, buy a property and rent it out. You save again and buy another one. You rent that out and keep going in the same way.

Speak To an Expert

We’ll have an initial five minute chat to address any burning questions, then we’ll set up a Zoom call or a meeting and spend an hour or so going through your affordability and any advice that we can offer at that stage.

That’s entirely free. No matter what type of finance we do, whether it’s residential, Buy to Let, bridging finance, we don’t charge a penny until we physically apply for a product for you.

What information do Buy to Let portfolio mortgage lenders ask for?

When you’ve got four or more properties lenders start to do ‘stress testing’ on your property portfolio. So if you’ve come to us ready to buy property number five, or to remortgage one of your properties, we will look at all your assets – their values, the mortgages outstanding, the rent you receive on them. We then stress test them at a specific rate, depending on the lender. 

We could go to five different lenders and they would all have different stress testing formulas. It’s all about making sure your portfolio is ‘self-financing,’ so it won’t interfere with any of your future projects or properties. 

Alongside that, the lender will need various documents about you as the director or shareholder of the limited company: your bank statements, pay slips, ID and utility bills etc. 

How is affordability calculated for portfolio mortgages?

Affordability will also differ from lender to lender but it’s the same as before – a lender will stress test your existing Buy to Let portfolio. The property you’re buying will also have to pass the rental stress test. 

If you were buying property where the rental income might be £1,500 per month, a lender would input that rent in their system to calculate the maximum borrowing. It will depend on the product – whether it’s a five year fixed rate or a two year fixed, for example, and whether you’re doing it in a limited company or a personal name. 

That formula will decide whether they can lend up to 75% or 80% of the property value, which is typically the top end.

How many payslips do I need for a Buy to Let mortgage?

It could be none. If you’re a portfolio landlord with experience – which typically means you’ve owned a property for six or 12 months – some lenders don’t have a minimum income requirement.

Income isn’t as relevant for Buy to Let. It does help having more income if you have adverse credit. A bigger deposit helps massively too, but income isn’t as important. 

If you are using a mainstream lender, to put yourself in the best position you probably need three months’ pay slips and at least £25,000 a year income, but there are lenders that will be happy with less than that.

How can a mortgage broker like Four Financial help somebody with their Buy to Let portfolio mortgage?

Just pick up the phone to a mortgage broker. Explain your circumstances and what you’re trying to achieve. When we have that first call with you we like to build an idea of your character. 

Then, when you buy property in the future or come back for any other financial needs, we’ll know that, for example, you’re nervous about future interest rates so we should look for five-year fixed deals.  Or you might be seeking to repay all of your debt to protect your family from inheriting any mortgage payments. 

We’ll chat through the scenario and build a picture of what you’re looking to achieve and everything else follows that. We can talk about property you’re interested in and put you on the right path.

Your property may be repossessed if you do not keep up with your mortgage repayments. 

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.