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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.

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What is a portfolio landlord?

A portfolio landlord is a residential landlord with four or more buy-to-let properties. Rental properties that are owned outright are not considered as part of the portfolio for mortgage application purposes, only those with a current buy-to-let mortgage in place are counted.

As many 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 will need 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 experience

  • If you’re buying jointly with another landlord then all of the properties that you own collectively will count towards the portfolio status for the purposes of taking another buy-to-let mortgage. This included properties that you don’t own together

  • 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, this could be between five and 10 depending on the lender, but 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 that are 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, and 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 also 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. 

You can’t have a portfolio mortgage as an individual landlord, and must be registered as a limited company to make an application. You’ll usually need a minimum of four buy-to-let properties to get one, and there may also be a minimum portfolio value of around £500,000.

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 - so 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 - although some lenders have no maximum LTV - often depending on your experience

  • 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 of around 10-20 per portfolio mortgage. This 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 may also want you to have experience of being a portfolio landlord specifically

  • Meet a minimum rental yield across the portfolio - This can be 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

  • However, you'll need to form an SPV (special purpose vehicle) limited company in order to get a portfolio mortgage, if you don’t trade as a limited company. This can be costly as all properties would need to be transferred from your individual ownership to limited company ownership

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 find the most suitable portfolio mortgage lender for your needs. A whole-of-market broker can search the market efficiently, and ensure you’re getting the most competitive rates for your circumstances.

Portfolio mortgage rates

Portfolio mortgage rates are typically calculated as an average of your existing rates. So if you have five properties, each with a different interest rate, you’d likely be offered an interest rate approximately based on the average of those five rates.

Keep in mind, however, that limited company buy-to-let rates are often higher than buy-to-let rates for an individual landlord, due to the increased risk involved in commercial lending.