Portfolio

What is a portfolio mortgage?

A portfolio mortgage enables you to mortgage multiple investment properties using one loan. This helps you to manage your properties much more effectively. You only have one portfolio mortgage loan to worry about instead of several mortgage loans. You only need to deal with one portfolio lender instead of several mortgage lenders. And you only need to make one mortgage payment each month instead of making multiple mortgage payments.

How does a portfolio mortgage work?

This type of mortgage is suitable for landlords with four or more investment properties. Whilst each lender’s criteria are different, there’s often no limit to the number of properties that can be placed under a portfolio mortgage. You can apply as an individual landlord or a limited company and a diverse portfolio of properties can be included.

Portfolio mortgages offer flexibility in that you can add or remove properties, pending another assessment by the lender. The loan-to-value (LTV) ratio and interest rate can be calculated across your entire portfolio rather than on the individual properties. You can choose to have a short mortgage term, such as 5 years, or a long term, such as 40 years.

What types of properties are portfolio mortgages suitable for?

Lenders are flexible when it comes to portfolio mortgages. They can cover different investment property types under the same loan. For example, you might own a buy-to-let property in Bexley, an HMO in Bexleyheath, a multi-unit freehold in Victoria and a holiday let in Pimlico. Portfolio mortgages can include the following types of properties:

• Standard buy-to-let properties
• Student buy-to-let properties
• Limited company buy-to-let properties
• Houses in multiple occupation (HMOs)
• Holiday lets
• Multiple flats within a single freehold title, known as a multi-unit freehold block (MUFB)
• Auction properties
• Properties with a consent to let

Are some properties difficult to get approval for with a portfolio mortgage?

Lenders generally prefer standard properties when it comes to approving portfolio mortgages. For example, residential houses and purpose-built flats that have a traditional construction. The properties that are harder to get approval for include:

• Non-standard properties, such as those with timber frames or a concrete construction
• Ex-council properties
• Studio flats

If you need to arrange finance for one of these types of properties, speak with one of our mortgage brokers on 01322 907 000. They can find the most suitable lender for you and negotiate the best terms on your behalf.

Are you considered to be a portfolio landlord?

If you own a buy-to-let property for additional income alongside your normal source of income, you’re classed as a private landlord. If your main source of income is derived from your rental properties, then you’re considered to be a professional landlord. Whilst owning two properties is, in effect, a portfolio, lenders require you to own a minimum of four rental properties to be approved for a portfolio mortgage. These can be owned privately or via a limited company. You don’t have to switch to a portfolio mortgage when you own four or more rental properties. However, you may prefer to deal with just one lender and make one mortgage payment each month instead of several.

Get expert advice about portfolio mortgages

If you’re looking for finance to expand your rental portfolio or want to remortgage your existing buy-to-let properties, consider the flexibility of a portfolio mortgage. Our mortgage brokers – based throughout Kent, London and Edinburgh – are available to answer your portfolio mortgage queries. They can discuss your circumstances and advise you on the ins and outs of portfolio mortgages, including the tax implications and details about limited company applications. This can help you to make an informed decision when applying for a portfolio mortgage.

At Trinity Finance, we have unrestricted access to the market. This ensures that you’ll benefit from the best portfolio mortgage products available as well as the latest to be released. Simply give us a call on 01322 907 000 to speak with one of our property portfolio mortgage brokers. If you prefer, send an email to us at info@trinityfinance.co.uk or an enquiry via our contact form. We’ll reply to you as quickly as possible with more information relating to portfolio mortgages.

Eligibility criteria for a portfolio mortgage

You need to have four or more rental properties to be eligible for a portfolio mortgage. Each lender has different criteria so some, for example, may cap the number of properties you can place under a portfolio mortgage. On the whole, however, lenders don’t tend to limit this. Another example is that some lenders set a maximum number of mortgaged properties that they’ll consider. Other lenders, however, look at all of the properties in your portfolio.

You can have a diverse range of properties in your portfolio, making this a flexible mortgage option. Some lenders insist on a minimum property value depending on the type of property. For example, £60,000 for a standard buy-to-let property or £150,000 for an HMO property. Other lenders expect your entire portfolio to have a minimum value.

You can apply for a portfolio mortgage as an individual or a limited company. Your experience as a landlord will be taken into consideration, with some lenders having a minimum requirement, such as 2 years. Joint applications are also accepted. In this instance, at least one applicant must meet the experience criteria and the collective number of properties between all applicants will be considered. Joint applicants can be individuals or directors of a limited company.

You need to meet the minimum age requirement to arrange a portfolio mortgage, such as 18 or 21 years old. Some lenders set maximum age restrictions too, such as being no older than 85 years old at the end of the mortgage term. This is to lower their level of risk.

In a similar way to standard mortgages, your personal income and expenditure are usually assessed. Some lenders have a minimum income requirement. The rental income will also be checked to ensure your affordability for a portfolio mortgage and we’ll explain this below.

The interest coverage ratio (ICR)

Portfolio mortgage lenders look at the interest coverage ratio (ICR) to assess your affordability. The ICR is the ratio of gross rental income compared with the mortgage interest repayments. Typically, lenders require a minimum ICR of 125% for basic rate taxpayers and limited companies. For higher rate taxpayers, lenders usually insist on a minimum ICR of 145% although some insist on 160%. The ICR is calculated using a stressed interest rate, which takes any potential interest rate increases into account.

The ICR shows lenders whether or not the rental income alone is adequate to cover the monthly repayment. If not, some lenders allow you to combine the rental income with your personal income, which is known as top slicing. If you’re in this position, our mortgage brokers will ensure that your application is submitted to one of these lenders.

How much can you borrow for a portfolio mortgage?

Portfolio mortgage lenders generally offer a maximum loan-to-value (LTV) ratio of 75%. In some cases, the LTV offered may be lower. For example, you may have a higher number of mortgaged properties at completion than the maximum requirement to be approved for a 75% LTV. In this case, the lender may offer a lower LTV of 65%. These LTVs mean you need to have a substantial deposit of 25% or 35%. If you don’t have that amount of deposit available, you can remortgage an existing property to raise the amount needed. Some lenders allow you to use a gifted deposit for a portfolio mortgage.

The loan amounts offered vary between lenders. Some, for example, only consider applications for a minimum loan size, such as £40,000. Others stipulate a maximum loan amount. The loans can be offered for single properties or you can have a combined loan to cover multiple properties. For example, the maximum loan amount provided by a lender for a single property may be £1 million. If you want a combined loan for more than one property, however, they may offer you a maximum loan of £3 million.

Portfolio mortgage rates

Portfolio mortgages are usually arranged on an interest-only basis, just like standard buy-to-let mortgages. The interest rates for portfolio mortgages tend to be higher, though, as this type of mortgage poses more of a risk to lenders. The rate payable for a portfolio mortgage is calculated across your portfolio, based on the existing rates for each property. For example, you may have six mortgaged rental properties in Bexley, each with its own rate. With a portfolio mortgage, you are only charged one rate and this is calculated on the current rates you’re paying. This typically works out as the average rate across the entire portfolio.

How to apply for a portfolio mortgage

To apply for a portfolio mortgage, you need to provide the lender with the same documentation that you would for a standard buy-to-let mortgage as well as some extra information. The standard buy-to-let documentation includes:

• Proof of your ID and address
• Your personal bank statements
• The business bank statements if you’re applying as a limited company
• Verification of your income, such as payslips or a tax summary

The additional information that portfolio mortgage lenders usually ask for includes:

• A business plan
• An asset and liability statement
• A property schedule

The property schedule will need to include full details of your existing portfolio. For example, the property addresses, values, outstanding mortgage balances, LTVs, monthly rental incomes, monthly mortgage payments, details of the lenders, how long you’ve owned the properties for and whether or not they are currently tenanted.

The advantages and disadvantages of portfolio mortgages

There are both pros and cons to having a portfolio mortgage so you need to weigh these up to decide whether or not this type of mortgage is right for you as a landlord.

Advantages

There are lots of benefits to arranging a portfolio mortgage when you have multiple investment properties.

Simplicity

You have one portfolio mortgage loan for multiple properties. This means that you only have to deal with one lender and make one monthly mortgage repayment. Your finances are simplified and you save a considerable amount of time when it comes to managing your portfolio.

Flexibility

You can include diverse types of properties in your portfolio mortgage. Properties can be added, removed or substituted in the future, pending further assessment by the lender. The LTV and ICR can be calculated across your entire portfolio. Some lenders allow you to make overpayments, usually up to 10% per year, without being penalised with an early repayment charge.

Growth potential

You can use the equity held in your portfolio to increase its size. If, for example, your portfolio has a value of £1 million and your outstanding mortgage loan is £550,000, you have £450,000 in equity. You can borrow against this to buy another investment property, which will generate additional income for you. Having equity available also means that raising a deposit to buy a property may not be necessary.

Increased borrowing power

When your portfolio has an underperforming property in it, this poses a risk for lenders and hampers your chances of securing a future loan. However, if all of your properties are placed under one mortgage, any properties that are performing well compensate for those that aren’t. As the rental income is spread across your whole portfolio when a lender calculates your affordability, you may even be able to secure a higher amount.

Fewer limitations

When applying for a standard mortgage, lenders often steer away from properties that are considered to be uninhabitable. This is because they increase the level of risk for lenders. Portfolio mortgage lenders, however, don’t usually impose restrictions on the condition of properties. This means that you’ll be approved for the portfolio mortgage loan when you want to finance a property that needs extensive work.

Tax efficiency

Changes to tax legislation for landlords have resulted in many landlords falling under a higher tax bracket. If you set up a limited company rather than investing in properties as an individual landlord, this is more tax efficient for you. This is especially the case when you transfer your portfolio of properties under a single portfolio mortgage.

Disadvantages

Compared with the advantages, there aren’t that many disadvantages to consider when looking at portfolio mortgages.

Higher interest rates

As portfolio mortgages pose a higher level of risk for lenders, the interest rates charged are higher than those for standard buy-to-let mortgages.

Early repayment charges

Some lenders apply an early repayment charge to portfolio mortgages. It’s important to check this in the terms of your mortgage before proceeding. Our property portfolio mortgage brokers can negotiate the cost of this with the lender on your behalf.

Less flexibility with your finances

If something unexpected happens at a great expense, you have no leeway as far as your mortgage payments are concerned. For example, if repairs happen to be needed in multiple properties at the same time, you can’t ask your lender to defer some of the payments for different properties that month to alleviate your financial strain. This is because all of your properties have been placed under a single portfolio mortgage and only one mortgage payment is made each month. You also need to allow for changes in the market, such as rental prices decreasing, which will reduce your income, or property values decreasing, which will lower the equity in your portfolio.

Do you need insurance for your portfolio of properties?

Having buildings and, if needed, contents insurance for your investment properties provides you with financial protection in case of unexpected instances. You never know when something might go wrong and owning multiple properties increases your risk of this. In the same way that having a portfolio mortgage simplifies the mortgage aspect of your property portfolio, taking out portfolio insurance makes managing the insurance policies across your portfolio much easier. Portfolio insurance covers multiple properties in one policy and is more cost-effective than taking out individual policies.

How to build your property portfolio

As you save enough funds for a new deposit, such as via your own savings or from the profit made on your rental income, you can buy another investment property and add it to your portfolio. Then, once you’ve built up equity in your properties, you can remortgage or release equity from them to help finance another purchase without having to save a new deposit. Make sure that you keep up-to-date records on each property, including the rental income achieved and any borrowing against them. This will help to make the mortgage process more efficient when you wish to add another property to your portfolio.

Benefit from the flexibility of a portfolio mortgage

If you want to expand your portfolio or remortgage some of your investment properties, consider the flexibility of a portfolio mortgage. Our mortgage brokers – located throughout Kent, London and Edinburgh – can assess your situation and maximise your borrowing potential. They will present your application to the lender with the most suitable criteria and terms to meet your needs. They will also negotiate for the best portfolio mortgage rate on your behalf. To get started with your application, just give us a call on 01322 907 000. If you prefer, send your details to us by email at info@trinityfinance.co.uk or via our contact form. One of our expert mortgage brokers will reply to you as quickly as possible with more information.

At Trinity Finance, we can also help you with other financial aspects. We can arrange your property insurance, for example, put critical illness cover in place for you or help with inheritance tax planning. Simply get in touch with us as detailed above and our mortgage and protection brokers will be happy to help you.