Buy to Let Portfolio Mortgage

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Buy to Let Portfolio Mortgage

Buy to Let Portfolio Mortgage

Scott West talks us through a Buy to Let portfolio mortgage.

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

This is a term that’s often misused by some people. A portfolio mortgage is a mortgage that covers a batch of properties in your portfolio. If you’ve got 20 properties in your portfolio, you might want to simplify your process. You don’t want to do 20 mortgages individually with lenders, different paperwork and keep track of them all expiring.

So you can combine them into a portfolio mortgage. You might have two mortgages that cover the whole 20 properties – so two mortgages each covering 10 properties. Those would be portfolio mortgages. 

Some people refer to Buy to let portfolio mortgages linked with the fact that once you’ve got more than four properties, you’re considered to be an experienced landlord and the rules change with some lenders. For the purpose of this podcast, I’m going to focus on portfolio mortgages as products covering multiple properties in a single loan.

How many properties does it take to create a portfolio?

Some changes with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) came in that state that if you’ve got four or more properties you’re considered to be an experienced landlord. 

For properties one, two and three lenders don’t do any background checks. But after the fourth property any lender that is PRA regulated will almost certainly start doing some checks on the portfolio. 

It means you’ll be required to hand over a portfolio schedule with your application, detailing each property address, value, loan size or rental income. The purpose is to check the portfolio ‘washes its own face’. Do the loans pay for themselves based on the rent? 

It’s more of a sense check than a compliance requirement. From their side it’s to make sure your background portfolio is self-financing and that giving you the next loan won’t make your situation worse or exacerbate any problems.

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

As many as you like. Historically the advice was to create a new limited company for every property you buy, but that is extremely unwieldy and a real pain to manage in terms of accounting. 

In fact you can have as many properties as you like in a single company. Some people do break them down and put HMOs in one company and student-lets in another third with the main portfolio as the primary one. But you can have them all in the same company if you want to. 

You can also have as many properties as you like. There are no restrictions. With a limited company you will almost always be required to sign a personal guarantee with a lender. A lot of lenders still use a floating charge or a debenture over the company. That doesn’t cause any complications with future financing, it just floats above the assets in the company. 

It just means that every time you mortgage, you need to get a letter of non crystallisation from a lender, which basically says that you’re not in default and they’re not trying to enact the debenture. It’s simply an extra layer of protection for the lender and a little bit more paperwork to do during the mortgage process.

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

Have a chat with us. We’ll give you some tips and advice on how to do that. We’ll ask you  where you plan to invest and what your goals are. For example if you’re chasing capital growth you might seek to invest in the south and southeast; if you’re chasing yields, it’s better to look up north. 

Your income and your overall goal will dictate how far you can go and how quickly you want to grow. If your end goal is 10 properties, to replace your income, brilliant. If your end goal is 50 properties it’s a slightly different strategy, and we might advise you differently. 

But when you start a marathon you begin with a single step. So have a chat with somebody and we’ll get you on track to buy your first property – if you haven’t got it already – and walk you through the process.

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

It’s largely the same stuff as with any normal Buy to Let mortgage – your passport, proof of address and bank statements proving general income. If you’re employed we’ll need recent payslips, if you’re self-employed it will be tax calculations and tax overviews from HMRC. 

For a purchase you will need a bank statement showing your deposit; if it’s a remortgage then you need the details of the property. If you’ve got a portfolio you will have a spreadsheet of your property details ready.

How is affordability calculated for portfolio mortgages?

It’s the same as a standard Buy to Let mortgage. The rental income is put through a stress calculation which effectively gives you a multiple for the loan amount. It does depend whether you’re borrowing personally or under a limited company and how long your mortgage is for – those stress calculations do change. If you’re a higher rate, additional rate or lower rate taxpayer or limited company, they all have different calculations. 

So it’s hard to give a single answer to that question, but essentially a multiple of your rental income will give you a loan amount, and that will depend on the rate as well.

How many payslips do I need for a buy to let mortgage?

Usually only one if you’re doing a mortgage in your own name. If you’re doing a purchase through a limited company some lenders don’t even need to look at income, as it’s an investment property. 

The provider will only lend to you based on the property being self-financing – hence the multiple of the rental income. It has to fit affordability, so your personal income really doesn’t matter. The only time they will use it is to check where you fit in the tax bandings.

With a limited company the lender might just want to check your personal income to see where you are and if you can afford to live if the property is relatively low yielding. They want to know if the property will be your only source of income or what else is in the background.

How can a broker help with a Buy to Let Limited mortgage?

How brokers really help is packaging the case. Presentation really is key. If you just blindly submit an application and wait for the underwriters to ask questions, it’s a really slow process. It also doesn’t paint a very good picture for the underwriter. 

Whereas if you have all the data upfront and submit the application with all the documents at once, it’s a much clearer package for an underwriter. They’re going to be happier and the whole process is easier. You don’t end up trying to tell a story over several weeks via email. 

So a good broker will get all the documents from you upfront, explain the process and spot any issues or errors before they submit the application.

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