For investors or landlords that are approaching ownership of multiple mortgaged rental properties, a portfolio mortgage may begin to look like a more appropriate choice.
This type of mortgage may start to make sense when landlord reach or plan to exceed ownership of four mortgaged rental properties.
Lenders at this point will typically classify the investor as a portfolio landlord, which necessitates a different type of financing.
What are some of the key triggers and benefits of a portfolio mortgage?
Under Prudential Regulation Authority rules, once you have ownership of four or more mortgaged buy-to-let properties, you fall into the portfolio landlord category and as such, lenders will require you to use specialist portfolio products instead.
This can result in your entire property collection being help to stricter, holistic stress tests as a result.
However, by consolidating multiple individual BTL mortgages into a single, overarching portfolio loan, it significantly reduces paperwork, simplifying financial management into just one monthly repayment.
With a portfolio mortgage, it allows landlords to potentially borrow against the combined equity of all the properties. As such, it can release funds for further investments, which all benefit faster growth of the portfolio in general.
Lenders will assess the risk and affordability across the entire portfolio. A strong and high-performing property will often help to offset a lower-yielding one, which might not be a possibility when it comes to single-property financing.
It often makes sense that when you have several fixed-rate deals expiring around the same time, that you refinance the entire portfolio all at once. This can often lead to better overall rates and consolidates your debt in order to be in a more stable financial position for future expansion.
Considerations to make before committing
Before diving into a portfolio mortgage, what considerations need to be made before committing?
Stricter underwriting
With portfolio mortgages, you should be prepared for more rigorous scrutiny of the entire business plan, including comprehensive loan-to-value ratios as well as income coverage ratios across all of the properties.
Potentially higher costs
Portfolio loans might come with slightly higher interest rates or fees, compared to traditional, single BTL mortgages. The lender is often taking on a larger, concentrated risk.
These potentially higher costs though are often outweighed with the benefits that come with portfolio mortgages in general.
Professional advice
The process of a portfolio mortgage can be complex, with is why it’s important that you work with a specialist mortgage broker that understands the nuances of the portfolio lending criteria. It’s also wise to seek out advice from accountants regarding any tax implications, especially if you plan to incorporate your portfolio into a limited company in the future.
The more properties you add to your portfolio, the more financially successful you can become. However, it’s good to know what financial efforts you can make in order to benefit your investments further, rather than hindering them.
If you plan to own more than four properties in the future for the purpose of renting them out, then it’s worth learning more about portfolio mortgages so you can be prepared if you’re required to have one.
