Portfolio landlord
What is a portfolio landlord and are you classed as one? We look at what defines a portfolio landlord, how buy-to-let criteria differ if you're classed as one, and the benefits of using a portfolio mortgage.
What is a portfolio landlord?
A portfolio landlord is a residential landlord with four or more mortgaged buy-to-let properties. Rental properties that are owned outright are not considered as part of the four-property threshold, only those with a current buy-to-let mortgage in place are counted.
As some high street lenders often limit the number of mortgaged properties to three or four per landlord, those wishing to expand their portfolio further may need to look to a specialist lender. They might also consider a buy-to-let portfolio mortgage, which is where all properties are financed under one mortgage.
What are the criteria for portfolio landlords?
When you become a portfolio landlord, the number of lenders available to you is likely to reduce, as some of the bigger high street lenders won’t support more than four buy-to-let mortgages from one landlord.
Some lenders will want to carry out additional stress checks before they accept your application for another buy-to-let mortgage. These vary from one lender to the next, but typically:
The rental yield of the entire portfolio typically needs to meet 145% of the mortgage repayments, also known as the interest coverage ratio (ICR). In some cases this will include unencumbered properties and those with consent to let
You’ll typically need existing landlord experience to increase the size of your portfolio to four or more. Some lenders have a minimum requirement of around two years of experience
If you’re buying jointly with another landlord then all of the properties that you own collectively may count towards the portfolio status for the purposes of taking another buy-to-let mortgage
The loan-to-value (LTV) may be reduced or spread across the portfolio, like the ICR
Some lenders have a maximum number of properties per portfolio landlord, though not all specialist lenders have a limit
Some lenders will only lend on certain property types, however, they are generally more flexible with portfolio landlords
Is it harder to get a buy-to-let mortgage as a portfolio landlord?
It can be more difficult to get another buy-to-let mortgage once you become a portfolio landlord. Not all lenders will provide finance to portfolio landlords, and those that do typically have stricter criteria.
That said, there are plenty of specialist lenders able to help, so it’s worth speaking to a mortgage broker to find one suited to your needs. Some even offer specialist portfolio mortgages, which can simplify the financial management of your residential property portfolio.
What is a portfolio mortgage?
A portfolio mortgage is a product aimed specifically at portfolio landlords which allows them to manage a portfolio of properties through a single buy-to-let mortgage. As it’s treated as a single account, there’s only one interest rate and one repayment to make per month.
It’s also perfectly possible to manage a property portfolio with multiple separate buy-to-let mortgages, with one or more lenders, but a portfolio mortgage can simplify this - especially for landlords with a larger number of properties.
Some landlords, for example, find it useful to use portfolio mortgages where they own an entire apartment block - as each would be classed as a separate residence for the purposes of the portfolio.
What are the criteria for a portfolio mortgage?
As with all mortgages, criteria vary from one lender to the next. However, to take out a portfolio mortgage you’ll typically need to:
Be a portfolio landlord - you'll usually need to own four or more properties with a current buy-to-let mortgage
Borrow at a maximum of 75% LTV - this may be either per property or across the portfolio as a whole
Meet minimum and maximum loan values - this varies by lender, but usually you’ll need to meet a minimum and maximum loan value per property, and a maximum combined loan value across the portfolio
Meet a maximum number of properties - some lenders have a maximum number of properties per portfolio mortgage, which could be instead of a maximum combined value, or alongside it. There are also lenders that don’t have a maximum number of properties that can be held in a portfolio
Have experience as a landlord - some lenders may also want you to have experience of being a portfolio landlord specifically
Meet a minimum rental yield across the portfolio - This is usually between 125-145% of the ICR
Meet a minimum income requirement - Some lenders require individual directors to have a minimum income of around £25,000, others are happy to use the SPVs profits
Be purchasing an acceptable property - As with typical buy-to-let mortgages, lenders can have property preferences, so not all will accept HMO properties, but there is typically more flexibility in this area for portfolio landlords, with some lenders even considering holiday lets as part of your portfolio
Advantages and disadvantages of having a portfolio mortgage
It simplifies your business finances - you only have a single monthly payment on one interest rate to manage the whole property portfolio
Equity held across the entire portfolio can be used to grow your portfolio more easily than using individual properties as security, due to the added value
Using an SPV can mean that you’re more tax efficient, although you don’t have to use a portfolio mortgage for limited company buy-to-let purchases, so this would be true either way
The borrowing is assessed holistically, which can boost your affordability as underperforming properties may be balanced by those performing well. Without a portfolio mortgage, each property in your portfolio would be viewed on its own merits and low performing properties could prevent additional lending
Most of the risk involved with a portfolio mortgage is attributed to the larger portfolio size.
The more properties you invest in, and the greater the amount you borrow, the greater the risk involved - but this would be true no matter what mortgage is used
With a portfolio mortgage, all properties are typically linked as security for the entire loan, which means defaulting on your mortgage payment can impact the entire mortgage
It can be more complex to sell one property from the portfolio, as your lender may need to re-evaluate the entire portfolio to ensure it still meets their criteria after the sale
You may lose the ability to manage your portfolio on a property-by-property basis, which limits your flexibility to remortgage individual properties at opportune times
You may be charged higher interest rates to offset some of the risk that a portfolio mortgage poses to the lender
Should I use a mortgage broker for a portfolio mortgage application?
It’s a good idea to speak to a mortgage broker with specialist portfolio mortgage experience when considering a portfolio mortgage. It’s a fairly complex process, especially if you’re looking to set up a special purpose vehicle and transfer your existing portfolio.
It’s also helpful to have a broker match your needs with lender criteria. As all lenders have different requirements to meet, it can be difficult to identify the most suitable portfolio mortgage lender. A whole-of-market broker can search the market efficiently, and ensure you’re getting the most competitive rates for your circumstances.
YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
The FCA does not regulate mortgages on commercial or investment buy-to-let properties.
Uswitch makes introductions to Mojo Mortgages to provide mortgage solutions.
Uswitch and Mojo Mortgages are part of the same group of companies. Uswitch Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference number 312850. You can check this on the Financial Services Register by visiting the FCA website.
Uswitch Limited is registered in England and Wales (Company No 03612689) The Cooperage, 5 Copper Row, London SE1 2LH.
Mojo Mortgages is a trading style of Life's Great Limited which is registered in England and Wales (06246376). Mojo are authorised and regulated by the Financial Conduct Authority and are on the Financial Services Register (478215)
Mojo’s registered office is The Cooperage, 5 Copper Row, London, SE1 2LH. To contact Mojo by phone, please call 0333 123 0012.