With significant demand for rental property and the benefits of the economies of scale associated with managing more than one rental accommodation, it is easy to see why many landlords manage several properties in their portfolio.
You might think managing many rental homes and mortgages is a challenging task, but there are ways you can simplify the process. Managing a single mortgage, rather than a range of individual mortgages, appeals to many property investors and landlords.
This financing is a popular option for investors and landlords, as it simplifies administrative tasks.
If you’re considering taking out a portfolio mortgage, this guide will give you everything you need. We’ll cover the basics of how they work, the benefits and drawbacks, and how to find the right deal for your circumstances.
What is a portfolio mortgage?
A portfolio mortgage is a loan that allows you to borrow against a portfolio of properties rather than just one. The lender views this loan as a single entity, so you have one mortgage with one monthly payment to make, making it easier to manage for all parties.
To find the best portfolio mortgage for your needs, you should speak with a qualified or experienced broker in this field. Many brokers have online tools that can help you compare different products while providing tailored recommendations based on your financial situation and goals.
If you’re considering taking out a portfolio mortgage, it’s essential to research and shop around for the right deal. With proper planning and strategy, a portfolio mortgage can be an excellent choice for investors and landlords looking to grow their portfolio.
It is worth noting that a customer with four or more mortgaged buy to let properties is classed as a ‘Portfolio landlord’.
A key issue to note about portfolio mortgages
An important thing to know about portfolio mortgages is many lenders require the applicant to be a limited company. Given many investors and landlords are setting up as a limited company to reap the benefits of this set-up, this isn’t a massive concern for many investors.
However, if you are new to this process, please research the implications and requirements of running a limited company to manage rental property and what an SPV mortgage is.
What are the benefits of a portfolio mortgage?
It won’t surprise you to learn there is a number of benefits associated with holding a portfolio mortgage, including:
There may be tax benefits associated with this type of mortgage, so you should seek property tax advice
Being able to simplify your finances, dealing with a single lender and mortgage is preferable for many landlords and investors
Landlords and investors can borrow against the equity in their holding, helping them to expand their property portfolio
If you have one or two very well-performing properties, it can cover shortcomings in others, which boosts your attractiveness to the lender for future loans
Simplifying the administrative aspect of holding a mortgage will appeal to many investors, but knowing there are tax and investment opportunities available with portfolio mortgages makes them well worth considering.
What are the drawbacks of a portfolio mortgage?
One potential drawback of portfolio mortgages is that they tend to have stricter qualification requirements than other types of mortgages. Since you’re borrowing against multiple properties, lenders typically require a strong credit profile, 25% at least deposit / equity, and more solid financial documentation.
There is also a good chance that the interest rate associated with portfolio mortgages is higher than with a standard personal name buy-to-let mortgage. The lender takes on a higher risk level with this arrangement, so a higher interest rate will be applied.
You must also consider the fees associated with a portfolio mortgage, which are often higher than those associated with traditional and even buy-to-let mortgages.
Additionally if you want to sell a property within the portfolio, you will need to liaise with the lender on this as it may affect the overall portfolio Loan To Value and affordability.
How to qualify for a portfolio mortgage
When qualifying for a portfolio mortgage, there are several key factors that lenders typically consider, which include:
The applicant and properties must be in a recognised lending area for the lender
There will likely be a maximum Loan-To-value (LTV) rate, although this can be assessed per property or across the whole portfolio – it is common for the maximum LTV to be 75%, but each lender has their own specific criteria
Each lender is likely to have minimum and maximum loan amounts available, and again, this can refer to individual properties and the portfolio as a whole
Some lenders (not all) will have a minimum and maximum number of properties which can be included in the portfolio
There will be a minimum and maximum term for the mortgage, with a minimum of five years and a maximum of 30 years not being uncommon, but please check with specific lenders
There will be an affordability assessment to ensure the portfolio can pass a ‘stress rate’ applied by the lender on the borrowing.
You should also check a lender’s requirements relating to the following:
Minimum age of applicant and maximum age when the mortgage is scheduled to end
Whether each applicant must also be a homeowner
If applicants require previous landlord experience
A minimum level of annual income
You should also ensure the lender allows your type of rental property to be part of a mortgage portfolio. Mortgage portfolios often include buy-to-let properties, holiday lets and HMOs, but you will need to check with the specific lender if they will also consider semi commercial or fully commercial properties also within the portfolio. The lender will also consider the rental market where you wish to buy property, which might influence their decision to offer a loan.
If you’re considering taking out a portfolio mortgage, it’s essential to understand the qualification requirements and work with a broker who can help you navigate the process. However, with proper preparation and planning, portfolio mortgages can be an excellent way for investors and landlords to grow their portfolios.
How to choose the right portfolio mortgage for you
When choosing a portfolio mortgage, there are several key factors to consider. These include the interest rate and fees, the loan-to-value ratio, the terms and conditions of the mortgage, and other eligibility requirements.
You should also consider the rental market, what property is available where you want to buy property, and how you will manage your rental property portfolio. There is a lot to consider when investing in, and managing, rental property, so it is never a bad idea to speak with specialists in the sector.
This will include brokers, estate agents, letting agents or property management providers plus property tax advisors.
Benefits of working with a portfolio mortgage broker
The benefits associated with working with a portfolio mortgage broker include expert guidance and advice on choosing the right portfolio mortgage, streamlined application processes, and connections to reputable lenders.
If you’re considering taking out a portfolio mortgage, make sure your finances are in good order, and you have documents to verify every claim you make on an application form. In this regard, a portfolio mortgage is no different from any other mortgage application.
How to explore your portfolio mortgage options with The Money Hub
If you would like quotations on portfolio mortgages we can help.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
There are some high street lenders that will provide portfolio mortgages such as Virgin Money and Barclays plus there are more specialist buy to let lenders accessible through brokers such as Shawbrook Bank and Vida Home Loans.